As filed electronically with the Securities and Exchange Commission on or about May 8, 2019
Registration No. 333-______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_________________________________________
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ___ [ ] Post-Effective Amendment No. ___
FIRST TRUST EXCHANGE-TRADED FUND II |
(Exact Name of Registrant as Specified in Charter)
120 East Liberty Drive Suite 400 Wheaton, Illinois 60187 |
(Address of Principal Executive Offices) (Zip Code)
(630) 765-8000 |
(Registrant’s Area Code and Telephone Number)
W. Scott Jardine First Trust Advisors L.P. Suite 400 120 East Liberty Drive Wheaton, Illinois 60187 |
(Name and Address of Agent for Service)
With copies to:
Eric F. Fess
Chapman and Cutler LLP
111 West Monroe Street
Chicago, Illinois 60603
TITLE OF SECURITIES BEING REGISTERED:
Shares of beneficial interest ($0.01 par value per share) of
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund, a Series of the Registrant.
Approximate date of proposed public offering: As soon as practicable after the effective date of this Registration Statement.
No filing fee is required because of reliance on Section 24(f) and an indefinite number of shares have previously been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
First Trust Heitman Global Prime Real Estate ETF
A Message from the Chairman of the Board of Trustees
[ ], 2019
Dear Shareholder:
I am writing to you to ask for your vote on a very important matter that will significantly affect your investment in First Trust Heitman Global Prime Real Estate ETF (“PRME”). Enclosed is a proxy statement and prospectus (“Proxy Statement/Prospectus”) seeking your approval of a proposal at a special meeting of shareholders of PRME (the “Meeting”).
At the Meeting, which will be held at the offices of First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, on [__], 2019, at [___] p.m., shareholders will be asked to consider and vote upon a proposed transaction involving a reorganization transaction (the “Reorganization”) whereby PRME will be combined with First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (“FFR”), an exchange-traded fund (“ETF”) organized as a separate series of First Trust Exchange-Traded Fund II, an open-end management investment company, pursuant to which shareholders of PRME would become shareholders of FFR.
Through the Reorganization, shares of PRME would be exchanged, on a tax-free basis for federal income tax purposes as further described herein, for shares of FFR with an equal aggregate net asset value, and PRME shareholders will become shareholders of FFR.
In determining to recommend approval of the proposal, the Board of Trustees of PRME considered the following factors, among others:
· | PRME and FFR have similar investment strategies; |
· | the Reorganization is expected to allow shareholders of PRME to hold shares of a fund with significantly greater net assets; and |
· | the Reorganization is expected to qualify as a tax-free reorganization for federal income tax purposes. |
The Board of Trustees of PRME has unanimously approved the Agreement and Plan of Reorganization (the “Plan”) and the transactions it contemplates and recommends that PRME shareholders vote “FOR” approval of the Plan and the Reorganization it contemplates. A copy of the form of the Plan is attached as Exhibit A to the enclosed Proxy Statement/Prospectus.
Also included in this booklet are the following materials concerning the upcoming Meeting:
· | a Notice of Special Meeting of Shareholders, which summarizes the proposal for which you are being asked to provide voting instructions; and |
· | a Proxy Statement/Prospectus, which provides detailed information on FFR, the specific proposal being considered at the Meeting and why the proposal is being made, including the differences between shares of PRME and the shares of FFR that PRME shareholders will receive as a result of the Reorganization. |
While you are, of course, welcome to join us at the Meeting, most shareholders cast their vote by filling out and signing the enclosed proxy card or by voting by touch-tone telephone or via the Internet. We urge you to review the enclosed materials thoroughly. Once you’ve determined how you would like your interests to be represented, please promptly complete, sign, date and return the enclosed proxy card or vote by touch-tone telephone or via the Internet. A postage-paid envelope is enclosed for mailing, and touch-tone telephone and Internet voting instructions are listed at the top of your proxy card.
Your vote is very important. As a shareholder, you are entitled to cast one vote for each share of PRME that you own. Please take a few moments to read the enclosed materials and then cast your vote.
Our proxy solicitor, AST Fund Solutions LLC, may contact you to encourage you to exercise your right to vote.
We appreciate your participation in this important Meeting. Thank you.
Sincerely yours,
James A. Bowen
Chairman of the Board of Trustees,
First Trust Heitman Global Prime Real Estate ETF
If You Need Any Assistance, Or Have Any Questions Regarding The Proposed Reorganization Or How To Vote Your Shares, Call AST Fund Solutions LLC at [( ) - ] Weekdays From 9:00 a.m. To 10:00 p.m. Eastern Time.
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Important Notice to Shareholders of
First Trust Heitman Global Prime Real Estate ETF
Questions & Answers
[ ], 2019
Although we recommend that you read the entire Proxy Statement/Prospectus, for your convenience, we have provided a brief overview of the issues to be voted on.
Q. | What is happening? |
A. | You are being asked to vote on the following proposal to be considered at a special meeting of shareholders (the “Meeting”) of First Trust Heitman Global Prime Real Estate ETF (“PRME”): |
• | The approval of an Agreement and Plan of Reorganization (the “Plan”) between First Trust Exchange-Traded Fund IV (“First Trust ETF IV”), of which PRME is a series, and First Trust Exchange-Traded Fund II (“First Trust ETF II”), of which First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund is a series (“FFR,” and PRME and FFR are each a “Fund” and, together, the “Funds”), and the reorganization contemplated thereby pursuant to which FFR will acquire the assets and assume the liabilities of PRME, and shareholders of PRME will become shareholders of FFR (collectively, the “Reorganization”). |
The Board of Trustees of PRME has determined that the proposal is in the best interests of the Fund. The Board of Trustees unanimously recommends that you vote FOR the proposal.
Q. | How will the Reorganization be effected? |
A. | Assuming PRME shareholders approve the Reorganization, PRME will be reorganized into FFR. Immediately following the reorganization, PRME will terminate its registration under the Investment Company Act of 1940, as amended (the “1940 Act”). |
Upon the closing of the reorganization of PRME into FFR, PRME shareholders will receive newly issued shares of FFR. Shareholders of PRME will receive a number of FFR shares equal in value to the value of the PRME shares held by such shareholders, each computed as of the close of regular trading on the NYSE Arca (the “NYSE Arca”) on the business day immediately prior to the date of the closing of the Reorganization (the “Valuation Time”).
Q. | Why is the Reorganization being recommended? |
A. | Since its inception, PRME has failed to gather assets and reach scale. This may be partially due to the fact that, since inception, PRME has underperformed its benchmark. PRME’s Board of Trustees and management have regularly monitored the size and performance of PRME and considered a variety of alternatives to increase its assets and have sought to develop a viable approach to address PRME’s lack of scale. FFR has significantly greater assets than PRME and has outperformed PRME since PRME’s inception on November 11, 2015 through the end of 2018. The Board of Trustees and management of PRME believe the Reorganization may allow PRME shareholders who become shareholders of FFR to experience the benefits associated with holding shares in a fund with significantly greater assets than PRME while allowing PRME’s shareholders the opportunity to continue their investment in a similar global real estate strategy. If the Reorganization is consummated, PRME’s shareholders will receive FFR shares equal in value to the value of their PRME shares as of the Valuation Time. Immediately after the Reorganization, FFR will have a greater asset base than PRME prior to the Reorganization. In addition, FFR has and is expected to maintain a lower total operating expense ratio than PRME following the Reorganization and FFR has historically made higher distributions than PRME. No assurances can be given that FFR’s total operating expense ratio and distributions will remain at their current rate. |
Q. | Will shareholders of the Funds have to pay any fees or expenses in connection with the Reorganization? |
A. | Yes. The direct costs associated with the proposed Reorganization, including the costs associated with the Meeting, will be borne by First Trust Advisors, L.P., the investment adviser of the Funds (“First Trust” or the “Adviser”). However, the indirect expenses of the Reorganization, primarily relating to the repositioning of the assets of PRME, will be borne by PRME and will impact the net asset value of PRME prior to the Reorganization. |
Q. | How will the Reorganization affect distribution rates? |
A. | Historically, FFR has had a higher distribution rate than PRME. As a result, PRME shareholders who continue as FFR shareholders following the Reorganization are expected to receive distributions at a higher rate. No assurances can be given that FFR distributions will remain at their current rate. |
Q. | Will the shares held by PRME shareholders continue to be listed on the NYSE Arca following the Reorganization? |
A. | Yes. PRME shares and FFR shares are both currently listed and trade on the NYSE Arca and FFR shares will continue to be listed and trade on the NYSE Arca following the Reorganization. |
Q. | Do the Funds have similar investment strategies and risks? |
A. | Yes. The investment strategies of PRME and FFR are similar in certain respects, but have some important differences. As a result of such similarities, the Funds are subject to many of the same investment risks. |
PRME is an actively managed exchange-traded fund (“ETF”) whose investment objective is to provide long-term total return. In contrast, FFR is an index-based ETF whose investment objective is to seek investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of the FTSE EPRA/ NAREIT Developed Index (the “Index”).
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PRME seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in U.S. and non-U.S. exchange-traded real estate securities, which includes real estate investment trusts (“REITs”), real estate operating companies (“REOCs”) and common stocks or depositary receipts of companies primarily engaged in the real estate industry (collectively, “Real Estate Securities”). Accordingly, PRME is concentrated in REITs and/or real estate management and development companies (including REOCs), sub-industries of the real estate industry group. Real estate management and development companies generally derive at least 50% of their revenue from, or have at least 50% of their assets invested in, real estate, including the ownership, construction, management, or sale of real estate. PRME does not invest directly in real estate.
FFR pursues its investment objective by investing at least 90% of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the Index. The Index is composed of publicly traded REITs and real estate holding and development companies. FFR, using an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the Index. The Fund’s investment advisor seeks a correlation of 0.95 or better (before fees and expenses) between the Fund’s performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Index is compiled and maintained by FTSE International Limited (“FTSE” or the “Index Provider”).
The principal differences between the investment strategies of PRME and FFR are as follows: (i) PRME is an actively managed ETF while FFR is an index-based ETF; and (ii) in addition to investing in REITs, PRME has or may have a significant holding in REOCs. As a result of such differences, PRME and FFR are subject to different risks associated with such different investments and strategies.
Q. | Are the Funds managed by the same portfolio management team? |
A. | No. Although First Trust Advisors L.P. serves as the investment adviser to both PRME and FFR, PRME is sub-advised by Heitman Real Estate Securities LLC, which provides the day-to-day management of PRME’s securities and investment strategy and sub-sub-advised by Heitman International Real Estate Securities HK Limited and Heitman International Real Estate Securities GmbH. First Trust manages the strategy of FFR. |
Q. | Will the Reorganization constitute a taxable event for PRME shareholders? |
A. | No. The Reorganization is expected to qualify as a tax-free reorganization for federal income tax purposes and will not occur unless PRME’s counsel provides a tax opinion to that effect. If a shareholder chooses to sell PRME shares prior to the Reorganization, the sale will generate taxable gain or loss; therefore, such shareholder may wish to consult a tax advisor before doing so. Of course, the shareholder also may be subject to periodic capital gains as a result of the normal operations of PRME whether or not the proposed Reorganization occurs. |
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PRME, if requested by FFR, will attempt to dispose of assets that do not conform to FFR’s investment objective, policies and restrictions in advance of the Reorganization. PRME intends to pay a dividend of any realized undistributed net investment income and capital gains, which may be substantial, immediately prior to the closing of the Reorganization of PRME into FFR. The amount of dividends actually paid, if any, will depend on a number of factors, such as changes in the value of PRME’s holdings and the extent of the liquidation of securities between the date of the Meeting and the closing of such Reorganization.
Q. | Will the value of my investment change as a result of the approval of the proposed Reorganization? |
A. | Shareholders of PRME will receive a number of FFR shares equal in value to the value of the PRME shares held as of the Valuation Time. It is estimated that portfolio repositioning will result in transaction costs payable by PRME in advance of the Reorganization of approximately $1,700, or 0.08% of its net assets, based on average costs normally incurred in such transactions. It is likely that the number of shares a PRME shareholder owns will change as a result of the Reorganization because shares of PRME will be exchanged for shares of FFR at an exchange ratio based on the Funds' relative net asset values, which will likely differ from one another at the Valuation Time. |
Q. | What vote is required to approve the proposed Reorganization? |
A. | The approval of the proposed Reorganization requires the affirmative vote of (i) 67% or more of the PRME shares present at the Meeting, if the holders of more than 50% of the outstanding shares of PRME are present or represented by proxy, or (ii) more than 50% of the outstanding shares of PRME, whichever is less. |
Q. | How does the Board of Trustees recommend that shareholders vote on the proposal? |
A. | After careful consideration, the Board of Trustees has determined that the Reorganization is in the best interests of PRME and that, the interests of PRME’s existing shareholders will not be diluted as a result of the Reorganization and recommends that shareholders vote FOR the proposal. |
Q. | What will happen if the required shareholder approval is not obtained? |
A. | In the event that shareholders of PRME do not approve the Reorganization, each Fund will continue to exist and operate on a stand alone basis. |
Q. | When would the proposed Reorganization be effective? |
A. | If approved, the Reorganization is expected to occur as soon as reasonably practicable after shareholder approval is obtained. Shortly after completion of the Reorganization, shareholders of PRME will receive notice indicating that the Reorganization was completed. |
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Q. | How can I vote? |
A. You can vote in any one of four ways:
• | by mail, by sending the enclosed proxy card, signed and dated; |
• | by phone, by calling one of the toll-free numbers listed on your proxy card for an automated touchtone voting line or to speak with a live operator; |
• | via the Internet by following the instructions set forth on your proxy card; or |
• | in person, by attending the Meeting. |
Whichever method you choose, please take the time to read the full text of the enclosed Proxy Statement/Prospectus before you vote.
Q. | Whom should I call for additional information about the Proxy Statement/Prospectus? |
A. Please call AST Fund Solutions LLC, the Funds’ proxy solicitor, at [( ) - ].
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First Trust Heitman Global Prime Real Estate ETF
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
Notice of Special Meeting of Shareholders
To be held on [ ], 2019
[ ], 2019
To the Shareholders of First Trust Heitman Global Prime Real Estate ETF:
Notice is hereby given that a Special Meeting of Shareholders (the “Meeting”) of First Trust Heitman Global Prime Real Estate ETF (“PRME”), a series of First Trust Exchange-Traded Fund IV, a Massachusetts business trust, will be held at the offices of First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, on [ ], 2019, at [ ] p.m. Central time, to consider the following (the “Proposal”):
To approve an Agreement and Plan of Reorganization by and between First Trust Exchange-Traded Fund IV, on behalf of PRME, and First Trust Exchange-Traded Fund II, on behalf of First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (“FFR”) pursuant to which PRME would (i) transfer all of its assets to FFR in exchange solely for newly issued shares of FFR and FFR’s assumption of all of the liabilities of PRME and (ii) immediately distribute such newly issued shares of FFR to PRME shareholders (collectively, the “Reorganization”).
The persons named as proxies will vote in their discretion on any other business that may properly come before the Meeting and any adjournments or postponements thereof.
Holders of record of shares of PRME at the close of business on [ ], 2019 are entitled to notice of and to vote at the Meeting and at any adjournments or postponements thereof.
By order of the Board of Trustees of PRME,
W. Scott Jardine
Secretary
Shareholders Who Do Not Expect To Attend The Meeting Are Requested To Promptly Complete, Sign, Date And Return The Proxy Card In The Enclosed Envelope Which Does Not Require Postage If Mailed In The Continental United States. Instructions For The Proper Execution Of Proxies Are Set Forth On The Next Page. If You Need Any Assistance, Or Have Any Questions Regarding Your Fund’s Proposal Or How To Vote Your Shares, Call AST Fund Solutions LLC at [( ) - ] Weekdays From 9:00 a.m. To 10:00 p.m. Eastern Time.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to you and help you to avoid the time and expense involved in validating your vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party signing should conform exactly to the name shown in the registration on the proxy card.
3. All Other Accounts: The capacity of the individual signing the proxy card should be indicated unless it is reflected in the form of registration. For example:
Registration | Valid Signature |
Corporate Accounts | |
(1) ABC Corp. | ABC Corp. |
(2) ABC Corp. | John Doe, Treasurer |
(3) ABC Corp. c/o John Doe, Treasurer | John Doe |
(4) ABC Corp. Profit Sharing Plan | John Doe, Director |
Partnership Accounts | |
(1) The XYZ Partnership | Jane B. Smith, Partner |
(2) Smith and Jones, Limited Partnership | Jane B. Smith, General Partner |
Trust Accounts | |
(1) ABC Trust Account | Jane B. Doe, Director |
(2) Jane B. Doe, Trustee u/t/d 12/28/78 | Jane B. Doe |
Custodial or Estate Accounts | |
(1) John B. Smith, Cust. f/b/o John B. Smith Jr. UGMA/ UTMA | John B. Smith |
(2) Estate of John B. Smith | John B. Smith, Jr., Executor |
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IMPORTANT INFORMATION FOR SHAREHOLDERS OF
First Trust Heitman Global Prime Real Estate ETF
This document contains a Proxy Statement/Prospectus and is accompanied by a proxy card. A proxy card is, in essence, a ballot. When you vote your proxy, it tells us how to vote on your behalf on an important issue relating to your fund. If you complete and sign the proxy card and return it to us in a timely manner (or tell us how you want to vote by phone or via the Internet), we’ll vote exactly as you tell us. If you simply sign and return the proxy card without indicating how you wish to vote, we’ll vote it in accordance with the recommendation of the Board of Trustees as indicated on the cover of the Proxy Statement/Prospectus.
We urge you to review the Proxy Statement/Prospectus carefully and either fill out your proxy card and return it to us by mail, vote by phone or vote via the Internet. Your prompt return of the enclosed proxy card (or vote by phone or via the Internet) may save the necessity and expense of further solicitations.
If you have any questions, please call AST Fund Solutions LLC, the proxy solicitor, at the special toll-free number we have set up for you: [( ) - ].
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The information contained in this Proxy Statement/Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Proxy Statement/Prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 8, 2019
First Trust Heitman Global Prime Real Estate ETF
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(630) 765-8000
PROXY STATEMENT/PROSPECTUS
[ ], 2019
This Proxy Statement/Prospectus is being furnished to shareholders of First Trust Heitman Global Prime Real Estate ETF (“PRME”), an exchange-traded fund organized as a separate series of First Trust Exchange-Traded Fund IV, an open-end management investment company (“First Trust ETF IV”), in connection with a Special Meeting of Shareholders (the “Meeting”) called by the Board of Trustees of PRME (the “Board of Trustees”) to be held at the offices of PRME, 120 E. Liberty Drive, Suite 400, Wheaton, Illinois 60187, on [ ], 2019, at [ ] p.m. Central time, as may be adjourned or postponed, to consider the proposal listed below, and discussed in greater detail elsewhere in this Proxy Statement/Prospectus. PRME and First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (“FFR”), an exchange-traded fund organized as a separate series of First Trust Exchange-Traded Fund II, an open-end management investment company (“First Trust ETF II”), are referred to herein collectively as the “Funds” and each is referred to herein individually as a “Fund.”
This Proxy Statement/Prospectus explains concisely what you should know before voting on the proposal described in this Proxy Statement/Prospectus or investing in FFR. Please read it carefully and keep it for future reference.
At the Meeting, the shareholders of PRME will be asked to approve the proposal, as described below (the “Proposal”):
To approve an Agreement and Plan of Reorganization by and between First Trust ETF IV, on behalf of PRME, and First Trust ETF II, on behalf of FFR, the form of which is attached to this Proxy Statement/Prospectus as Exhibit A (the “Plan”), pursuant to which PRME would (i) transfer all of its assets to FFR in exchange solely for newly issued shares of FFR and FFR’s assumption of all of the liabilities of PRME and (ii) immediately distribute such newly issued shares of FFR to PRME shareholders (collectively, the “Reorganization”).
The Board of Trustees has unanimously approved the Proposal as being in the best interests of PRME, and unanimously recommends that you vote FOR the Proposal. The Board of Trustees believes the Reorganization will allow PRME shareholders to hold shares in a fund with significantly greater assets while allowing PRME’s shareholders the opportunity to continue their investment in a global real estate strategy. In addition, FFR has historically paid a higher distribution than PRME. FFR is expected to maintain a higher distribution rate than PRME following the Reorganization. No assurances can be given that FFR distributions will remain at their current rate.
The proposed Reorganization seeks to combine the Funds, which have similar investment strategies and risks, but also have important distinctions. The Plan provides for the reorganization of PRME into FFR, pursuant to which PRME would (i) transfer all of its assets to FFR in exchange solely for newly issued shares of FFR and FFR’s assumption of all of the liabilities of PRME and (ii) immediately distribute such newly issued shares of FFR to PRME shareholders. Shareholders of PRME will receive a number of FFR shares equal in value to the value of the PRME shares held as of the close of regular trading on the NYSE Arca (the “NYSE Arca”) on the business day immediately prior to the closing of the reorganization of PRME into FFR (the “Valuation Time”). Through the Reorganization, shares of PRME would be exchanged on a tax-free basis for federal income tax purposes for shares of FFR. In the event that shareholders of PRME do not approve the Reorganization, each Fund will continue to exist and operate on a stand alone basis.
The securities offered by this Proxy Statement/Prospectus have not been approved or disapproved by the Securities and Exchange Commission (the “SEC”), nor has the SEC passed upon the accuracy or adequacy of this Proxy Statement/Prospectus. Any representation to the contrary is a criminal offense.
FFR lists and trades its shares on the NYSE Arca. Shares of FFR are not redeemable individually and therefore liquidity for individual shareholders of FFR will be realized only through a sale on the NYSE Arca at market prices that may differ to some degree from the net asset value of the FFR shares. Reports, proxy materials and other information concerning FFR can be inspected at the offices of the NYSE Arca.
The following documents contain additional information about PRME and FFR, have been filed with the SEC and are incorporated by reference into this Proxy Statement/Prospectus:
(i) the prospectus and Statement of Additional Information of FFR, dated February 1, 2019, relating to shares of FFR;
(ii) the prospectus and Statement of Additional Information of PRME, dated March 1, 2019, relating to shares of PRME;
(iii) the audited financial statements and related independent registered public accounting firm’s report for FFR and the financial highlights for FFR contained in FFR’s Annual Report to Shareholders for the fiscal year ended September 30, 2018 (SEC File No. 811-21944); and
(iv) the audited financial statements and related independent registered public accounting firm’s report for PRME and the financial highlights for PRME contained in PRME’s Annual Report to Shareholders for the fiscal year ended October 31, 2018 (SEC File No. 811-22559)
A copy of the FFR prospectus accompanies this Proxy Statement/Prospectus. The Statement of Additional Information to this Proxy Statement/Prospectus is also incorporated by reference and legally deemed to be part of this document, and is available upon oral or written request at no charge by calling First Trust Advisors L.P. (“First Trust”) at (800) 621-1675 or by writing to First Trust at 120 E. Liberty Drive, Suite 400, Wheaton, Illinois 60187. In addition, FFR will furnish, without charge, a copy of its prospectus, most recent Annual Report or Semi-Annual Report to a shareholder upon request. PRME’s prospectus dated March 1, 2019, and Annual Report to Shareholders for the fiscal year ended October 31, 2018, containing audited financial statements, have been previously made available or mailed to shareholders. Copies of these documents are available upon request and without charge by writing to First Trust at the address listed above or by calling (800) 621-1675.
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The Funds are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended (the “1940 Act”), and in accordance therewith are required to file reports and other information with the SEC. These reports, proxy statement/prospectus materials and other information can be inspected and copied, after paying a duplicating fee, by electronic request at publicinfo@sec.gov. In addition, copies of these documents may be viewed online or downloaded without charge from the SEC’s website at www.sec.gov. Reports, proxy materials and other information concerning PRME and FFR may be inspected at the offices of the NYSE Arca.
This Proxy Statement/Prospectus serves as a prospectus of FFR in connection with the issuance of the FFR common shares in the Reorganization. In this connection, no person has been authorized to give any information or make any representation not contained in this Proxy Statement/Prospectus and, if so given or made, such information or representation must not be relied upon as having been authorized. This Proxy Statement/Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any person to whom, it is unlawful to make such offer or solicitation.
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TABLE OF CONTENTS
INTRODUCTION | 1 |
A. Synopsis | 4 |
B. Risk Factors | 14 |
C. Information About the Reorganization | 21 |
D. Additional Information About the Investment Policies | 27 |
Proposal — Reorganization of PRME Into FFR | 32 |
ADDITIONAL INFORMATION ABOUT PRME AND FFR | 33 |
GENERAL INFORMATION | 40 |
OTHER MATTERS TO COME BEFORE THE MEETING | 45 |
EXHIBIT A FORM OF AGREEMENT AND PLAN OF REORGANIZATION | A-1 |
INTRODUCTION
This Proxy Statement/Prospectus, along with the Notice of Special Meeting of Shareholders and the proxy card, is being mailed to shareholders of PRME on or about [ ], 2019. Much of the information is required to be disclosed under rules of the SEC. If there is anything you don’t understand, please contact AST Fund Solutions LLC, proxy solicitor for the Funds, at [( ) - ].
Shareholders of record of PRME as of the close of business on [ ], 2019 (the “Record Date”) are entitled to notice of and to vote at the Meeting and any and all adjournments or postponements thereof. If you are unable to attend the Meeting or any adjournment or postponement thereof, the Board of Trustees requests that you vote your shares by completing and returning the enclosed proxy card or by recording your voting instructions by telephone or via the Internet. On the matters coming before the Meeting as to which a choice has been specified by shareholders on the accompanying proxy card, the shares will be voted accordingly where such proxy card is properly executed and not properly revoked. If a proxy is returned and no choice is specified, the shares will be voted FOR the Proposal. Shareholders who execute proxies or provide voting instructions by telephone or by Internet may revoke them at any time before a vote is taken on the Proposal by filing with PRME a written notice of revocation, by delivering a duly executed proxy bearing a later date, or by attending the Meeting and voting in person. A prior proxy can also be revoked prior to its exercise by voting again through the toll-free number or the Internet address listed in the proxy card. Merely attending the Meeting, however, will not revoke any previously submitted proxy. Shareholders who intend to attend the Meeting will need to show valid identification and proof of share ownership to be admitted to the Meeting.
AST Fund Solutions LLC has been engaged to assist in the solicitation of proxies for PRME. As the date of the Meeting approaches, certain shareholders of PRME may receive a telephone call from a representative of AST Fund Solutions LLC if their votes have not yet been received. Authorization to permit AST Fund Solutions LLC to execute proxies may be obtained by telephonic instructions from shareholders of PRME. Proxies that are obtained telephonically will be recorded in accordance with the procedures described below. The Board of Trustees believes that these procedures are reasonably designed to ensure that both the identity of the shareholder casting the vote and the voting instructions of the shareholder are accurately determined.
In all cases where a telephonic proxy is solicited, the representative of AST Fund Solutions LLC is required to ask for each shareholder’s full name and address, or zip code, or both, and to confirm that the shareholder has received the proxy materials in the mail. If the shareholder is a corporation or other entity, the representative is required to ask for the person’s title and confirmation that the person is authorized to direct the voting of the shares. If the information solicited agrees with the information provided to AST Fund Solutions LLC, then the representative has the responsibility to explain the process, read the Proposal on the proxy card, and ask for the shareholder’s instructions on the Proposal. Although the representative is permitted to answer questions about the process, he or she is not permitted to recommend to the shareholder how to vote, other than to read any recommendation set forth in this Proxy Statement/Prospectus. AST Fund Solutions LLC will record the shareholder’s instructions on the proxy card. Within 72 hours, the shareholder will be sent a letter or mailgram to confirm his or her vote and asking the shareholder to call AST Fund Solutions LLC immediately if the shareholder’s instructions are not correctly reflected in the confirmation.
Please see the instructions on your proxy card for voting by phone or via the Internet. Shareholders will have an opportunity to review their voting instructions and make any necessary changes before submitting their voting instructions by phone or via the Internet.
Under the By-Laws of PRME, a quorum for the transaction of business is constituted by the presence in person or by proxy of the holders of at least thirty-three and one-third percent (33-1/3%) of the voting power of the outstanding shares of the respective Fund entitled to vote at the Meeting. For purposes of establishing whether a quorum is present, all shares present and entitled to vote, including abstentions and broker non-votes (i.e., shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or the persons entitled to vote and (ii) the broker or nominee does not have discretionary voting power on a particular matter), are counted.
If a quorum is not present, the chair of the Meeting or person presiding thereat, as applicable, may adjourn the Meeting from time to time until a quorum is present. In the event that a quorum is present but sufficient votes in favor of the Proposal have not been received, the Meeting may, by motion of the person presiding thereat, be adjourned when such adjournment is approved by the vote of holders of shares of PRME representing a majority of the voting power of the shares of PRME present and entitled to vote with respect to the matter to be adjourned, and voting on the adjournment. Unless a proxy is otherwise limited in this regard, any shares of PRME present and entitled to vote at the Meeting that are represented by broker non-votes may, at the discretion of the proxies named therein, be voted in favor of adjournment.
Broker-dealer firms holding shares of PRME in “street name” for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares on the Proposal. Pursuant to NYSE Rule 452, broker-dealers that are members of the NYSE Arca and that have not received instructions from a customer prior to the date specified in the broker-dealer’s request for voting instructions may not vote such customer’s shares on the Proposal being considered at the Meeting. Broker-dealers who are not members of the NYSE Arca may be subject to other rules, which may or may not permit them to vote customer shares without instruction.
The affirmative vote of a majority of the outstanding voting securities of PRME is required to approve the Proposal relating to the Plan as set forth on the cover of this Proxy Statement/Prospectus. The “vote of a majority of the outstanding voting securities” is defined in the 1940 Act as the vote of the lesser of (i) 67% or more of the shares of PRME present at the Meeting, if the holders of more than 50% of such outstanding shares are present in person or represented by proxy; or (ii) more than 50% of such outstanding shares of PRME. For purposes of determining the approval of the Plan and the Reorganization it contemplates by PRME shareholders, abstentions and broker non-votes will have the effect of a vote against such Proposal.
Proxy solicitations will be made, beginning on or about [ ], 2019, primarily by mail, but such solicitations may also be made by telephone or personal interviews conducted by (i) officers of PRME, as applicable; (ii) AST Fund Solutions LLC, PRME’ proxy solicitor that will provide proxy solicitation services in connection with the Proposal set forth herein; (iii) First Trust Advisors L.P. (“First Trust” or, the “Advisor”), the investment adviser of the Funds; (iv) Brown Brothers Harriman & Co., the administrator, accounting agent, custodian and transfer agent of PRME ; or (v) any affiliates of those entities.
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The direct expenses associated with the preparation of the Proposal and of the proxy solicitation activities with respect thereto, including the costs incurred in connection with the preparation of this Proxy Statement/Prospectus and its enclosures, will be paid by First Trust.
The indirect expenses of the Reorganization, primarily relating to the repositioning of the assets of PRME, will be borne by PRME and are estimated to be approximately $1,700, or 0.08% of its net assets, based on average costs normally incurred in such transactions.
As of the Record Date, [ ] shares of PRME were outstanding. Shareholders of record on the Record Date are entitled to one vote for each share of PRME the shareholder owns.
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A. Synopsis
The following is a summary of certain information contained elsewhere in this Proxy Statement/Prospectus with respect to the proposed Reorganization and is qualified in its entirety by reference to the more complete information contained in this Proxy Statement/Prospectus and in the Reorganization SAI and the appendices thereto. Shareholders should read the entire Proxy Statement/Prospectus carefully. Certain capitalized terms used but not defined in this summary are defined elsewhere in this Proxy Statement/Prospectus.
The Proposed Reorganization
The Board of Trustees of PRME, including the trustees who are not “interested persons” of the Fund (as defined in the 1940 Act), has unanimously approved the proposed Reorganization, including the Plan. If the shareholders of PRME approve the Proposal, PRME will reorganize into FFR, pursuant to which PRME would (i) transfer all of its assets to FFR in exchange solely for newly issued shares of FFR and FFR’s assumption of all of the liabilities of PRME and (ii) immediately distribute such newly issued shares of FFR to PRME shareholders. In connection with the Reorganization, FFR will issue to PRME shareholders book entry interests for the shares of FFR registered in a “street name” brokerage account held for the benefit of such shareholders. Shareholders of PRME will receive a number of FFR shares equal in value to the value of the PRME shares held as of the Valuation Time. Through the Reorganization, shares of PRME would be exchanged on a tax-free basis for federal income tax purposes for shares of FFR. Like shares of PRME, shares of FFR are not deposits or obligations of, or guaranteed or endorsed by, any financial institution, are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other agency, and involve risk, including the possible loss of the principal amount invested.
Background and Reasons for the Proposed Reorganization
Since its inception, PRME has failed to gather assets and reach scale. This may be partially due to the fact that, since inception, PRME has underperformed its benchmark. PRME’s Board of Trustees and management have regularly monitored the size and performance of PRME and considered a variety of alternatives to increase its assets and have sought to develop a viable approach to address PRME’s lack of scale. FFR has significantly greater assets than PRME and has outperformed PRME since PRME’s inception on November 11, 2015 through the end of 2018. The Board of Trustees and management of PRME believe the Reorganization may allow PRME shareholders who become shareholders of FFR to experience the benefits associated with holding shares in a fund with significantly greater assets than PRME while allowing PRME’s shareholders the opportunity to continue their investment in a similar global real estate strategy. Immediately after the Reorganization, FFR will have a greater asset base than PRME prior to the Reorganization. In addition, FFR has and is expected to maintain a lower total operating expense ratio than PRME following the Reorganization and FFR has historically made higher distributions than PRME. No assurances can be given that FFR’s total operating expense ratio and distributions will remain at their current rate.
Board Considerations Relating to the Proposed Reorganization
Based on information provided by First Trust, the Board of Trustees considered the following factors, among others, in determining to recommend that shareholders of PRME approve the Plan and the Reorganization it contemplates:
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· | Compatibility of Investment Objectives and Policies. The Board noted that, although PRME is an actively managed exchange-traded fund (“ETF”) that seeks to provide long-term total return while FFR is an index-based ETF that seeks to track an index, both Funds primarily invest in real estate securities traded on U.S. and non-U.S. exchanges, including real estate investment trusts (“REITs”). The Board considered the significant overlap of the Funds’ then-current portfolio holdings and the Funds’ similar country exposures. The Board also considered that the index that FFR seeks to track serves as the benchmark for PRME. |
· | Comparison of Fees and Expense Ratios; Expense Savings. The Board considered comparative expense information for PRME and FFR, including comparisons between the current advisory fee rates and expense ratios for PRME and FFR and the estimated pro forma advisory fee rate and expense ratio of the combined fund. The Board noted that FFR’s advisory fee rate would not change as a result of the Reorganization. The Board considered that FFR’s total expenses are capped 35 basis points lower than PRME’s unitary management fee through January 31, 2020, which will result in immediate expense savings for PRME shareholders following the Reorganization. The Board noted the Advisor’s statement that it plans to propose the extension of the current expense cap until January 31, 2021 in connection with the renewal of FFR’s advisory agreement in June 2019. The Board considered that any expense savings for FFR after the Reorganization would initially benefit the Advisor by reducing the amount of the fees to be waived or expenses to be reimbursed by the Advisor for FFR. |
· | Expenses of the Reorganization. The Board noted that the Advisor proposed to bear the direct costs of the Reorganization, including costs associated with proxy solicitation. The Board also noted the indirect costs to be borne by PRME as a result of portfolio repositioning prior to the Reorganization. The Board considered the Advisor’s estimate that, based on estimated annual expense savings as a result of the Reorganization, shareholders of PRME were expected to recoup the indirect Reorganization costs within three months of the completion of the Reorganization. |
· | Potential Improved Trading and Liquidity. The Board considered the larger asset size and trading volume of FFR as compared to PRME and that PRME shareholders may benefit from becoming shareholders of a larger fund with higher trading volume, potentially resulting in improved liquidity and narrower bid-ask spreads. |
· | Fund Performance and Distribution Rates. The Board reviewed the historical performance of PRME and FFR, noting that FFR has outperformed PRME over the one- and three-year periods ended December 31, 2018 and has outperformed PRME since PRME’s inception through December 31, 2018. The Board also received information comparing the Funds’ distribution rates and noted that FFR’s current distribution rate is higher than PRME’s current distribution rate. |
· | Portfolio Management. The Board noted that Heitman Real Estate Securities LLC (“Heitman”) serves as investment sub-adviser to PRME and two Heitman affiliates serve as investment sub-sub-advisers to PRME, and that FFR is managed by the Advisor’s Investment Committee. The Board noted that the Advisor’s Investment Committee would continue to manage FFR following the closing of the Reorganization. |
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· | Anticipated Tax-Free Reorganization; Capital Loss Carryforwards. The Board noted the Advisor’s statement that the Reorganization will be structured with the intention that it qualify as a tax-free reorganization for federal income tax purposes and that PRME and FFR will obtain an opinion of counsel substantially to this effect (based on certain factual representations and certain customary assumptions). In addition, the Board noted the Advisor’s statement that PRME’s capital loss carryforwards could be transferred in the Reorganization, which, subject to certain limitations, could then be used by FFR. |
· | Terms and Conditions of the Reorganization. The Board considered the terms and conditions of the Reorganization and whether the Reorganization would result in the dilution of the interests of existing shareholders of PRME and FFR in light of the basis on which shares of FFR would be issued to shareholders of PRME. |
Please see “Information About the Reorganization—Background and Trustees’ Considerations Relating to the Proposed Reorganization” below for a further discussion of the deliberations and considerations undertaken by the Board of Trustees in connection with the proposed Reorganization.
The Board of Trustees of each Fund has concluded that the Reorganization is in the best interests of its respective Fund and the interests of the existing shareholders of each Fund will not be diluted as a result of the Reorganization. In the event that shareholders of PRME do not approve the Reorganization, each Fund will continue to exist and operate on a stand-alone basis.
Material Federal Income Tax Consequences of the Reorganization
For federal income tax purposes, no gain or loss is expected to be recognized by PRME or its shareholders as a direct result of the Reorganization. Any capital gains realized prior to the Reorganization will be distributed to PRME’s shareholders as capital gain dividends (to the extent of net realized long-term capital gains distributed) and/or ordinary dividends (to the extent of net realized short-term capital gains distributed) during or with respect to the year of sale, and such distributions will be taxable to PRME’s shareholders. Through the Reorganization, PRME shares will be exchanged, on a tax-free basis for federal income tax purposes, for shares of FFR with an equal aggregate net asset value, and PRME shareholders will become shareholders of FFR.
Comparison of the Funds
General. PRME is a non-diversified, actively managed ETF that was created as a series of First Trust ETF IV, an open-end management investment company organized as a Massachusetts business trust, on November 11, 2015. FFR is a diversified, index-based ETF that was created as a series of First Trust ETF II, an open-end management investment company organized as a Massachusetts business trust, on August 27, 2007.
Investment Objectives Policies and Strategies. The investment strategies of PRME and FFR are similar, but have some important distinctions, each as discussed and summarized below. The primary differences between the investment strategies of PRME and FFR are as follows: (i) PRME is an actively managed ETF while FFR is an index-based ETF; and (ii) in addition to investing in REITs, which are one of the primary investment classes held by FFR, PRME has a significant holding in real estate operating companies (“REOCs”). As a result of such differences, PRME and FFR are subject to the different risks associated with such different investments and strategies. PRME is sub-advised by Heitman, which provides the day-to-day management of PRME and two Heitman affiliates serve as investment sub-sub-advisers to PRME. The similarities and differences between the Funds’ investment objectives, principal strategies and policies and non-principal and other investment strategies and policies are highlighted below.
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Each Fund’s investment objectives are a fundamental policy of the Fund and may not be changed without the approval of a “majority of the outstanding voting securities” of the respective Fund. A “majority of the outstanding voting securities” means the lesser of (i) 67% or more of the shares represented at a meeting at which more than 50% of the outstanding shares are represented, or (ii) more than 50% of the outstanding shares.
Each Fund’s complete portfolio holdings as of the end each month are filed on Form N-PORT with the SEC.
Investment Objectives. PRME’s investment objective is to provide long-term total return. FFR seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the FTSE EPRA/ NAREIT Developed Index (the “Index”).
Principal Investment Strategies and Policies. PRME seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in U.S. and non-U.S. exchange-traded real estate securities, which includes REITs, REOCs and common stocks or depositary receipts of companies primarily engaged in the real estate industry (collectively, “Real Estate Securities”). Accordingly, PRME is concentrated in REITs and/or real estate management and development companies (including REOCs), sub-industries of the real estate industry group. Real estate management and development companies generally derive at least 50% of their revenue from, or have at least 50% of their assets invested in, real estate, including the ownership, construction, management, or sale of real estate. PRME does not invest directly in real estate.
PRME’s portfolio managers select Real Estate Securities by implementing an investment process that is outlined below:
As a first screen, all securities in the Global Industry Classification Standard (GICS®) real estate industry are filtered for size and liquidity, based upon free float market capitalization for size and a threshold daily trading volume for liquidity. The purpose of these quantitative screens is to ensure that the investment strategy can be executed in a buy and hold manner without undue stress.
In the second stage, screening is conducted using a combination of qualitative and quantitative tools. From a qualitative perspective, portfolio analysts maintain a close coverage universe and are in regular contact with the management of potential Real Estate Securities issuers, regularly visiting properties and markets to see as many of the properties in person as is reasonably possible. In addition to their own research, the analysts have access to other property experts and sell-side professionals within their organizations who also evaluate their companies. The task of the analysts is to identify those companies that meet the test of two quantitative filters. The issuers in which PRME invests must generally have (1) more than 75% of their gross asset value in prime markets and (2) more than 50% of their assets under management in prime assets.
Executing the quantitative and qualitative screens produces a universe of companies that meet the size, liquidity, and concentration in prime markets and assets tests. From this universe of prime assets and markets, the portfolio managers’ regional teams construct a high conviction portfolio that, in the opinion of the portfolio managers, offers the best expected risk/return profile of the names within the prime universe. Consideration for inclusion in the portfolio includes the issuer’s balance sheet, assessment of management’s acumen and the projected long-term growth profile of the company.
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PRME invests in REITs and REOCs, companies that own and often manage income-generating real estate. REITs distribute most of their income to investors and therefore receive special tax considerations and are typically a highly liquid method of investing in real estate. REOCs, on the other hand, reinvest most income into their operations and therefore do not get the same benefits of lower corporate taxation that are a common characteristic of REITs.
PRME typically invests in 25 to 100 Real Estate Securities issued by small, mid and large capitalization companies. PRME invests in securities of issuers domiciled or operating in Asia and Europe, as well as other non-U.S. issuers, including those in emerging market countries. PRME generally invests at least 40% of its net assets in securities of non-U.S. issuers and in issuers domiciled or operating in at least three different countries.
PRME is classified as “non-diversified” under the 1940 Act and as a result may invest a relatively high percentage of its assets in a limited number of issuers. PRME is only limited as to the percentage of its assets which may be invested in the securities of any one issuer by diversification requirements imposed by the Internal Revenue Code of 1986, as amended (the “Code”). As of January 31, 2019, PRME had significant investments in real estate companies.
FFR will normally invest at least 90% of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the Index. FFR, using an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the Index. FFR’s investment advisor seeks a correlation of 0.95 or better (before fees and expenses) between FFR’s performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Index is compiled and maintained by FTSE International Limited (“FTSE” or the “Index Provider”).
The Index is designed to measure the stock performance of companies engaged in specific real estate activities, including the ownership, trading and development of income-producing real estate, in the North American, European and Asian real estate markets. The Index is modified market cap weighted based on free float market capitalization and includes the securities of real estate companies or REITs that are publicly traded on an official stock exchange located in North America, Europe or Asia and provides an audited annual report in English. The securities must also meet certain size and liquidity tests to be included in the Index.
The Index is rebalanced and reconstituted quarterly and FFR will make corresponding changes to its portfolio shortly after the Index changes are made public. FFR will be concentrated in an industry or a group of industries to the extent that the Index is so concentrated. As of December 31, 2018, FFR had significant investments in real estate companies.
Trustees and Officers. The Trustees of First Trust ETF II (of which FFR is a series) are the same as those of First Trust ETF IV (of which PRME is a series). The following individuals comprise the Board of Trustees of both First Trust ETF II and First Trust ETF IV: James A. Bowen, Richard E. Erickson, Thomas R. Kadlec, Robert F. Keith and Niel B. Nielson. The Board of Trustees is responsible for the management of the Funds, including supervision of the duties performed by First Trust as an investment adviser to the Funds. In addition, the officers of First Trust ETF II are the same as those of First Trust ETF IV. See “Management of the Funds” in the Reorganization SAI for additional information on the trustees and officers of FFR.
Investment Advisers and Portfolio Managers. First Trust Advisors L.P., 120 East Liberty Drive, Wheaton, Illinois 60187, is the investment adviser to the Funds. In this capacity, First Trust provides certain clerical, bookkeeping and other administrative services to each Fund as well as fund reporting services. In addition to the foregoing, in the case of FFR, First Trust is also responsible for the selection and ongoing monitoring of the portfolio securities. Heitman Real Estate Securities LLC is the sub-adviser of PRME and is responsible for the day-to-day management of the portfolio of the Fund and Heitman International Real Estate Securities HK Limited and Heitman International Real Estate Securities GmbH are sub-sub-advisers to the Fund. Following the Reorganization, First Trust will continue in its capacity as the investment adviser of FFR.
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First Trust is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. Grace Partners of DuPage L.P. is a limited partnership with one general partner, The Charger Corporation, and a number of limited partners. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, the Chief Executive Officer of First Trust. First Trust discharges is responsibilities subject to the policies of the Board of Trustees of the Funds.
As of March 31, 2019, First Trust served as investment advisor to seven mutual funds, ten exchange-traded funds consisting of 141 series and 15 closed-end funds. It is also the portfolio supervisor of certain unit investment trusts sponsored by First Trust Portfolios L.P., an affiliate of First Trust Advisors, 120 East Liberty Drive, Wheaton, Illinois 60187 (“FTP”). FTP specializes in the underwriting, trading and distribution of unit investment trusts and other securities. As of March 31, 2019, First Trust collectively managed or supervised approximately $127 billion through unit investment trusts, exchange traded funds, closed-end funds, mutual funds and separate managed accounts. First Trust is the supervisor of the First Trust unit investment trusts, while FTP is the sponsor. FTP is also a distributor of mutual fund shares and exchange-traded fund creation units. First Trust and FTP are based in Wheaton, Illinois.
Heitman, located at 191 North Wacker Drive, 25th Floor, Chicago, Illinois 60606, is an investment adviser registered with the SEC. As of March 31, 2019, Heitman has assets under management of approximately $6.02 billion.
The portfolio management team for PRME consists of Mr. Jerry Ehlinger, CFA, Mr. John White, Mr. Jacques Perdrix and Mr. Andreas Welter of Heitman.
Jerry Ehlinger, CFA, is Managing Director of Heitman and the Lead Portfolio Manager in Heitman’s North American Public Real Estate Securities group. He also serves as a Portfolio Manager for the firm’s global real estate securities strategies. Throughout his career, Jerry has held a number of related investment positions in the REIT industry. Before joining Heitman in 2013, Jerry was Lead Portfolio Manager and Head of Real Estate Securities, Americas at DB/RREEF Real Estate. Prior, Jerry served as Senior Vice President and Portfolio Manager of Heitman’s real estate securities group from 2000 to 2004. He began his career at Morgan Stanley in 1996 where he primarily covered the REIT sector both as a sell-side analyst and as a senior research associate at Morgan Stanley Asset Management. Jerry received an MS in Finance, Investment and Banking from the University of Wisconsin-Madison and a BS in Finance from the University of Wisconsin-Whitewater. Among other professional affiliations, Jerry is a member of the National Multi Housing Council, International Council of Shopping Centers, the CFA Institute, the CFA Society of Chicago, and the National Association of Real Estate Investment Trusts.
John White, is Managing Director and the Lead Portfolio Manager in Heitman’s Asia-Pacific Public Real Estate Securities group. He is an equity owner of the firm and a member of Heitman’s Management Committee. He also serves as a Portfolio Manager for the firm's global real estate securities strategies. John has over 20 years of experience in the public and private equity and debt real estate markets across the Asia-Pacific region. Prior to joining Heitman in 2010, John was co-head of real estate securities at Challenger (Heitman’s Asian JV partner for real estate securities) for five years; he was also senior investment manager, real estate securities at HSBC Asset Management from 2001. Before moving to investment management, John worked in investment banking as a senior property analyst at HSBC and as a manager—real estate credit at ANZ Banking Group in Australia and in South-East Asia. He began his career as a real estate valuer at Landauer and Chesterton. John received a BBus in Land Economy from University of Western Sydney-Hawkesbury and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. He is a member of the Royal Institute of Chartered Surveyors, the Asian Public Real Estate Association, the Australian Property Institute and the Financial Services Institute of Australasia.
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Jacques Perdrix is a Senior Vice President in Heitman’s European Public Real Estate Securities group. His role with Heitman focuses on portfolio management, including fundamental company and market analysis. Prior to joining Heitman, Mr. Perdrix was at Griffin Capital Management where he worked as an analyst and assistant portfolio manager on long-only and long/short equity and fixed income funds covering mid/large-caps on a broad range of sectors and geographies. Previously, Mr. Perdrix worked at equity long/short hedge fund Gugner Partners as a senior analyst and back-up trader focusing on European small/mid-caps across all sectors. Mr. Perdrix started his career within Citigroup’s Investment Banking Division, M&A Financial Institutions Group, in both Paris and London. Mr. Perdrix, a French national, received a Specialized Master’s in Corporate Finance from EM Lyon School of Management and a Master of Science in Management from ESC Grenoble School of Management. He is FSA qualified.
Andreas Welter is a Senior Vice President in Heitman’s European Public Real Estate Securities group. His role with Heitman focuses on portfolio construction, fundamental company and market analysis supporting the Portfolio Management team. Prior to joining the firm, Mr. Welter was at Deutsche Bank AG, where he was a senior sell-side equity research analyst for three years. In that time, Mr. Welter covered companies in various industry sectors in Germany (e.g., real estate, financials, construction, logistics). Previously, Mr. Welter worked at the Middle Office & Advisory Desk of B. Metzler seel. Sohn & Co., one of Germany’s largest family-owned investment managers. Mr. Welter earned the title of Bankkaufmann (apprenticeship in banking) from the Chamber of Commerce and Industry Frankfurt and holds a Diploma in International Business Administration (Diplom-Betriebswirt) from one of the top-ranked universities in Europe (Hochschule Darmstadt).
There is no one individual primarily responsible for portfolio management decisions for FFR. Investments are made under the direction of the Investment Committee of First Trust with daily decisions being made jointly by Investment Committee members. The Investment Committee consists of Daniel J. Lindquist, Jon C. Erickson, David G. McGarel, Roger F. Testin, Stan Ueland and Chris A. Peterson.
Mr. Lindquist is Chairman of the Investment Committee and presides over Investment Committee meetings. Mr. Lindquist is responsible for overseeing the implementation of the Fund’s investment strategy. Mr. Lindquist joined First Trust as a Vice President in April 2004 and was a Senior Vice President of First Trust and FTP from September 2005 to July 2012. Mr. Lindquist has been a Managing Director of First Trust and FTP since 2012.
Mr. Erickson has been a Senior Vice President of First Trust and FTP since 2001. As the head of First Trust’s Equity Research Group, Mr. Erickson is responsible for determining the securities to be purchased and sold by funds that do not utilize quantitative investment strategies.
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Mr. McGarel is the Chief Investment Officer, Chief Operating Officer and a Managing Director of First Trust and FTP. As First Trust’s Chief Investment Officer, Mr. McGarel consults with the other members of the Investment Committee on market conditions and First Trust’s general investment philosophy. As Chief Operating Officer, Mr. McGarel is responsible for First Trust and FTP operations, including information systems, trust administration and First Trust administration. Mr. McGarel was a Senior Vice President of First Trust and FTP from January 2004 to July 2012.
Mr. Testin has been a Senior Vice President of First Trust and FTP since 2003. Mr. Testin is the head of First Trust’s Portfolio Management Group.
Mr. Ueland joined First Trust as a Vice President in August 2005 and has been a Senior Vice President of First Trust and FTP since September 2012. At First Trust, he plays an important role in executing the investment strategies of each portfolio of exchange-traded funds advised by First Trust.
Mr. Peterson is a Senior Vice President and head of First Trust’s strategy research group. He joined First Trust in January of 2000. Mr. Peterson is responsible for developing and implementing quantitative equity investment strategies. Mr. Peterson received his B.S. in Finance from Bradley University in 1997 and his M.B.A. from the University of Chicago Booth School of Business in 2005. He has over 20 years of financial services industry experience and is a recipient of the Chartered Financial Analyst designation.
Pursuant to the Investment Management Agreement between First Trust and First Trust ETF IV, on behalf of PRME, First Trust currently receives an annual unitary management fee equal to 0.95% of PRME’s average daily managed assets. In connection with the unitary management fee First Trust receives from PRME, First Trust is responsible for paying all expenses of PRME excluding fee payments under the Investment Management Agreement, interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. Pursuant to the Investment Management Agreement between First Trust and First Trust ETF II, on behalf of FFR, First Trust is paid an annual management fee of 0.40% of FFR’s average daily net assets. Unlike PRME, FFR does not pay a unitary management fee and therefore FFR is responsible for paying all its own expenses of operation. First Trust has agreed to waive fees and/or reimburse FFR for expenses to the extent necessary to prevent FFR’s operating expenses (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) from exceeding (as a percentage of average daily net assets) 0.60%. First Trust may benefit as a result of the Reorganization as it currently pays Heitman a fee for its services as subadvisor to PRME. As there is no subadvisor for FFR and First Trust does not pay a subadvisory fee or other expenses of FFR, First Trust may receive a greater net management fee in connection with the assets of PRME after the Reorganization.
Capitalization
Fund | Authorized Shares | Shares Outstanding(1) | Par Value Per Share | Preemptive, Appraisal or Exchange Rights | Rights to Cumulative Voting | Exchange on which the Shares are Listed |
PRME | Unlimited | 100,002 | $0.01 | None | None | NYSE Arca |
FFR | Unlimited | 1,050,002 | $0.01 | None | None | NYSE Arca |
(1) As of April 30, 2019. |
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Comparative Fees and Expenses
The following table sets forth the fees and expenses of investing in shares of PRME and FFR and the estimated pro forma fees and expenses of FFR after giving effect to the Reorganization. Actual expenses of the combined Fund may be higher. As shown below, the proposed Reorganization is expected to result in a lower total expense ratio for shareholders of PRME who become shareholders of FFR as a result of the Reorganization. However, there can be no assurance that the Reorganization will result in expense savings.
| PRME | FFR | Pro Forma Combined Fund |
Shareholder Fees (fees paid directly from your investment) | |||
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None(1) | None(2) | None(2) |
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | |||
Management Fees | 0.95%(3) | 0.40%(4) | 0.40%(4) |
Dividend Reinvestment Plan Fees | None | None | None |
Distribution and Service (12b-1) Fees | 0.00% | 0.00% | 0.00% |
Other Expenses | 0.00% | 0.47% | 0.47% |
Total Annual Fund Operating Expenses | 0.95% | 0.87% | 0.87% |
Fee Waiver and Expense Reimbursement | 0.00% | 0.27%(5) | 0.27%(5) |
Net Annual Fund Operating Expenses | 0.95% | 0.60% | 0.60% |
________________ (1) As an ETF, PRME trades on NYSE Arca and does not charge a sales load or a redemption fee on individual Fund shares. When buying or selling Fund shares, investors will incur customary brokerage commissions and charges. Purchasers of Creation Units (as hereinafter defined) of PRME and shareholders redeeming Creation Units of PRME must pay a standard creation or redemption transaction fee of $600, as applicable. (2) As an ETF, FFR trades on NYSE Arca and does not charge a sales load or a redemption fee on individual Fund shares. When buying or selling Fund shares, investors will incur customary brokerage commissions and charges. Purchasers of Creation Units of FFR and shareholders redeeming Creation Units of FFR must pay a standard creation or redemption transaction fee of $4,500, as applicable. (3) The management fee of PRME is based on the Fund’s average daily net assets. (4) The management fee of FFR is based on the Fund’s average daily net assets. (5) First Trust has agreed to waive fees and/or expenses to the extent that the operating expenses of FFR (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed 0.60% of FFR’s average daily net assets per year (the “Expense Cap”) at least through January 31, 2020. It is anticipated that the current expense cap will be extended until January 31, 2021 in connection with the renewal of FFR’s advisory agreement in June 2019. Expenses reimbursed and fees waived under such agreement are subject to recovery by First Trust for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment will be made by FFR if it results in FFR exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees waived by First Trust. The agreement may be terminated by the First Trust ETF II, on behalf of FFR, at any time and by First Trust only after January 31, 2020 upon 60 days’ written notice. |
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Example
The following example is intended to help you compare the costs of investing in the shares of FFR on a pro forma basis following the Reorganization with the costs of investing in PRME and FFR without the Reorganization. An investor would pay the following expenses on a $10,000 investment that is held for the time periods provided in the table, assuming that all dividends and other distributions are reinvested and that operating expenses remain the same. The example also assumes a 5% annual return and that FFR’s investment advisor’s agreement to waive fees and/or pay FFR’s expenses to the extent necessary to prevent the operating expenses of FFR (excluding interest expense, brokerage commissions
and other trading expenses, taxes, and extraordinary expenses) from exceeding 0.60% of average daily net assets per year will be terminated following January 31, 2020. The example should not be considered a representation of future expenses or returns. Actual expenses may be greater or lesser than those shown.
1 Year | 3 Years | 5 Years | 10 Years | |
PRME | $97 | $303 | $525 | $1,166 |
FFR | $61 | $251 | $456 | $1,048 |
FFR (pro forma) | $61 | $251 | $456 | $1,048 |
Distributions |
PRME distributes its net investment income monthly and FFR distributes its net investment income quarterly and each fund distributes its net realized capital gains at least annually, if any. Neither PRME nor FFR have established a dividend reinvestment plan, but dividends may be reinvested automatically in additional PRME or FFR shares, respectively, if the broker through whom you hold such shares makes this option available. Such shares will generally be reinvested by the broker based upon the market price of those shares and investors may be subject to brokerage commissions charged by the broker.
Further Information Regarding the Reorganization
Each Fund’s Board of Trustees has determined that the proposed Reorganization is in the best interests of its Fund. Accordingly, the Board of Trustees of PRME recommends that PRME shareholders vote FOR approval of the Plan and the Reorganization it contemplates.
The affirmative vote of a majority of the outstanding voting securities of PRME is required to approve the Plan. The “vote of a majority of the outstanding voting securities” is defined in the 1940 Act as the vote of the lesser of (i) 67% or more of the shares of the Fund present at the Meeting, if the holders of more than 50% of such outstanding shares are present in person or represented by proxy; or (ii) more than 50% of such outstanding shares of the Fund.
If the Reorganization is approved by shareholders of PRME, PRME shareholders will receive confirmation of the approval after the Reorganization is completed, indicating the number of shares of FFR such PRME shareholders are receiving as a result of the Reorganization. Otherwise, PRME shareholders will be notified in the next shareholder report of PRME. If the Reorganization is completed, the number of shares owned by a PRME shareholder will change following the Reorganization, as the shareholder will own shares in a different entity. However, the shareholders of PRME will receive a number of FFR shares equal in value to the value of the PRME shares held as of the Valuation Time.
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B. Risk Factors
The investment strategies of PRME and FFR are similar, but have some important distinctions, as discussed in this Proxy Statement/Prospectus. The principal differences between the investment strategies of PRME and FFR are as follows: (i) PRME is an actively managed ETF while FFR is an index-based ETF; and (ii) in addition to investing in REITs, PRME has a significant holding in REOCs. As a result of such differences, PRME and FFR are subject to different risks associated with such different investments and strategies. Additionally, as PRME is classified as a “non-diversified” fund under the 1940 Act and FFR is classified as a “diversified” fund under the 1940 Act, PRME is subject to non-diversification risk, as described below.
Aside from these differences, as investment companies following similar strategies, many of the principal risks applicable to an investment in PRME are also applicable to an investment in FFR. Shares of each Fund may change in value, and an investor could lose money by investing in either Fund. The Funds may not achieve their investment objectives. An investment in a Fund is not a deposit with a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. An investment in a Fund involves risks similar to those of investing in equity securities of any fund traded on an exchange. Risk is inherent in all investing.
The following specific factors have been identified as the principal risks of investing in FFR. These risks should be considered by shareholders of PRME in their evaluation of the Reorganization. An investment in FFR may not be appropriate for all investors. FFR is not intended to be a complete investment program. Investors should consider their long-term investment goals and financial needs when making an investment decision with respect to FFR. Shares of FFR at any point in time may be worth less than an investor’s original investment. As indicated, PRME may also be subject to certain of these risks.
Principal Risks of FFR
Asia Risk
FFR is subject to certain risks specifically associated with investments in the securities of Asian issuers. Many Asian economies have experienced rapid growth and industrialization, and there is no assurance that this growth rate will be maintained. Some Asian economies are highly dependent on trade, and economic conditions in other countries within and outside Asia can impact these economies. Certain of these economies may be adversely affected by trade or policy disputes with its major trade partners. There is also a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Certain Asian countries have experienced and may in the future experience expropriation and nationalization of assets, confiscatory taxation, currency manipulation, political instability, armed conflict and social instability as a result of religious, ethnic, socio-economic and/or political unrest. In particular, escalated tensions involving North Korea and any outbreak of hostilities involving North Korea could have a severe adverse effect on Asian economies. Governments of certain Asian countries have exercised, and continue to exercise, substantial influence over many aspects of the private sector. In certain cases, the government owns or controls many companies, including the largest in the country. Accordingly, government actions could have a significant effect on the issuers of the Fund’s securities or on economic conditions generally.
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Authorized Participant Concentration Risk (also applicable to PRME)
Only an authorized participant may engage in creation or redemption transactions directly with FFR. A limited number of institutions act as authorized participants for FFR. To the extent that these institutions exit the business or are unable to proceed with creation and/or redemption orders and no other authorized participant steps forward to create or redeem, FFR’s shares may trade at a premium or discount to FFR’s net asset value and possibly face delisting.
Concentration Risk (also applicable to PRME)
To the extent that FFR invests a large percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of FFR’s investments more than if FFR were more broadly diversified. A concentration makes FFR more susceptible to any single occurrence and may subject FFR to greater market risk than a fund that is not so concentrated.
Currency Risk (also applicable to PRME)
Changes in currency exchange rates affect the value of investments denominated in a foreign currency, and therefore the value of such investments in FFR’s portfolio. FFR’s net asset value could decline if a currency to which FFR has exposure depreciates against the U.S. dollar or if there are delays or limits on repatriation of such currency. Currency exchange rates can be very volatile and can change quickly and unpredictably. As a result, the value of an investment in FFR may change quickly and without warning.
Cyber Security Risk (also applicable to PRME)
FFR is susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause FFR to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause FFR to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to FFR’s digital information systems through “hacking” or malicious software coding but may also result from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition, cyber security breaches of the securities issuers or FFR’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which FFR invests, can also subject FFR to many of the same risks associated with direct cyber security breaches. Although FFR has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts will succeed, especially because FFR does not directly control the cyber security systems of issuers or third-party service providers.
Depositary Receipts Risk (also applicable to PRME)
Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts because such restrictions may limit the ability to convert the equity shares into depositary receipts and vice versa. Such restrictions may cause the equity shares of the underlying issuer to trade at a discount or premium to the market price of the depositary receipts.
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Equity Securities Risk (also applicable to PRME)
The value of FFR’s shares will fluctuate with changes in the value of the equity securities in which it invests. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant equity market, such as market volatility, or when political or economic events affecting an issuer occur. Common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
Europe Risk (also applicable to PRME)
FFR is subject to certain risks specifically associated with investments in the securities of European issuers. Political or economic disruptions in European countries, even in countries in which FFR is not invested, may adversely affect security values and thus FFR’s holdings. A significant number of countries in Europe are member states in the European Union (the “EU”), and the member states no longer control their own monetary policies by directing independent interest rates for their currencies. In these member states, the authority to direct monetary policies, including money supply and official interest rates for the Euro, is exercised by the European Central Bank. The United Kingdom’s referendum on June 23, 2016 to leave the EU (known as “Brexit”) sparked depreciation in the value of the British pound, short-term declines in the stock markets and heightened risk of continued economic volatility worldwide. Although the long-term effects of Brexit are difficult to gauge and cannot be fully known, they could have wide ranging implications for the United Kingdom’s economy, including: possible inflation or recession, continued depreciation of the pound, or disruption to Britain’s trading arrangements with the rest of Europe. The United Kingdom is one of the EU’s largest economies. Its departure may negatively impact the EU and Europe as a whole by causing volatility within the EU, triggering prolonged economic downturns in certain European countries or sparking additional member states to contemplate departing the EU (thereby perpetuating political instability in the region).
Index Constituent Risk
FFR may be a constituent of one or more indices. As a result, FFR may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving FFR’s shares, the size of FFR and the market volatility of FFR. Inclusion in an index could increase demand for FFR and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, FFR’s net asset value could be negatively impacted and FFR’s market price may be below FFR’s net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in FFR’s shares.
Index Provider Risk
There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase FFR’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by FFR and its shareholders.
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Inflation Risk (also applicable to PRME)
Inflation risk is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the present value of FFR’s assets and distributions may decline.
Market Maker Risk (also applicable to PRME)
FFR faces numerous market trading risks, including the potential lack of an active market for FFR shares due to a limited number of market markers. Decisions by market makers or authorized participants to reduce their role or step away from these activities in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the relationship between the underlying values of FFR’s portfolio securities and FFR’s market price. FFR may rely on a small number of third-party market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating to the trading activity of these market makers could result in a dramatic change in the spread between FFR’s net asset value and the price at which FFR’s shares are trading on the Exchange, which could result in a decrease in value of FFR’s shares. This reduced effectiveness could result in FFR shares trading at a discount to net asset value and also in greater than normal intraday bid-ask spreads for FFR shares.
Market Risk (also applicable to PRME)
Market risk is the risk that a particular security, or shares of FFR in general, may fall in value. Securities are subject to market fluctuations caused by such factors as economic, political, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of FFR could decline in value or underperform other investments.
Non-Correlation Risk
FFR’s return may not match the return of the Index for a number of reasons. FFR incurs operating expenses not applicable to the Index, and may incur costs in buying and selling securities, especially when rebalancing FFR’s portfolio holdings to reflect changes in the composition of the Index. In addition, FFR’s portfolio holdings may not exactly replicate the securities included in the Index or the ratios between the securities included in the Index.
Non-U.S. Securities Risk (also applicable to PRME)
Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments, restrictions on foreign investment or exchange of securities, lack of liquidity, currency exchange rates, excessive taxation, government seizure of assets, different legal or accounting standards, and less government supervision and regulation of securities exchanges in foreign countries.
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Passive Investment Risk
FFR is not actively managed. FFR invests in securities included in or representative of the Index regardless of investment merit. FFR generally will not attempt to take defensive positions in declining markets. In the event that the Index is no longer calculated, the Index license is terminated or the identity or character of the Index is materially changed, FFR will seek to engage a replacement index.
Portfolio Turnover Risk
High portfolio turnover may result in FFR paying higher levels of transaction costs and may generate greater tax liabilities for shareholders. Portfolio turnover risk may cause FFR’s performance to be less than expected.
Premium/Discount Risk (also applicable to PRME)
The market price of FFR’s shares will generally fluctuate in accordance with changes in FFR’s net asset value as well as the relative supply of and demand for shares on the NYSE Arca. FFR’s investment advisor cannot predict whether shares will trade below, at or above their net asset value because the shares trade on the NYSE Arca at market prices and not at net asset value. Price differences may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for shares will be closely related, but not identical, to the same forces influencing the prices of the holdings of FFR trading individually or in the aggregate at any point in time. However, given that shares can only be issued and redeemed in large blocks consisting of a specified number of shares (“Creation Units”), and only to and from broker-dealers and large institutional investors that have entered into participation agreements (unlike shares of closed-end funds, which frequently trade at appreciable discounts from, and sometimes at premiums to, their net asset value), FFR’s investment advisor believes that large discounts or premiums to the net asset value of shares should not be sustained.
Real Estate Companies Risk (also applicable to PRME)
Real estate companies include REITs and other companies involved in the operation and development of commercial, residential and industrial real estate. An investment in a real estate company may be subject to risks similar to those associated with direct ownership of real estate, including the possibility of declines in the value of real estate, losses from casualty or condemnation, and changes in local and general economic conditions, supply and demand, interest rates, environmental liability, zoning laws, regulatory limitations on rents, property taxes, and operating expenses. Some real estate companies have limited diversification because they invest in a limited number of properties, a narrow geographic area, or a single type of property. The price of a real estate company’s securities may also drop because of dividend reductions, lowered credit ratings, poor management, or other factors that affect companies in general.
REIT Risk (also applicable to PRME)
REITs typically own and operate income-producing real estate, such as residential or commercial buildings, or real-estate related assets, including mortgages. As a result, investments in REITs are subject to the risks associated with investing in real estate, which may include, but are not limited to: fluctuations in the value of underlying properties; defaults by borrowers or tenants; market saturation; changes in general and local operating expenses; and other economic, political or regulatory occurrences affecting companies in the real estate sector. REITs are also subject to the risk that the real estate market may experience an economic downturn generally, which may have a material effect on the real estate in which the REITs invest and their underlying portfolio securities. REITs may have also a relatively small market capitalization which may result in their shares experiencing less market liquidity and greater price volatility than larger companies. Increases in interest rates typically lower the present value of a REIT's future earnings stream, and may make financing property purchases and improvements more costly. Because the market price of REIT stocks may change based upon investors' collective perceptions of future earnings, the value of FFR will generally decline when investors anticipate or experience rising interest rates.
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Trading Issues Risk (also applicable to PRME)
Although the shares of FFR are listed for trading on the Exchange, there can be no assurance that an active trading market for such shares will develop or be maintained. Trading in shares on the Exchange may be halted due to market conditions or for reasons that, in the view of the Exchange, make trading in shares inadvisable. In addition, trading in shares on the Exchange is subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s “circuit breaker” rules. Market makers are under no obligation to make a market in FFR’s shares, and authorized participants are not obligated to submit purchase or redemption orders for Creation Units. In the event market makers cease making a market in FFR’s shares or authorized participants stop submitting purchase or redemption orders for Creation Units, Fund shares may trade at a larger premium or discount to their net asset value. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of FFR will continue to be met or will remain unchanged. FFR may have difficulty maintaining its listing on the Exchange in the event FFR’s assets are small or FFR does not have enough shareholders.
Principal Risks of PRME
The investment objectives and strategies of PRME and FFR are similar, but they also have some important distinctions, as discussed in this Proxy Statement/Prospectus. As a result of such differences, PRME is subject to the following additional risks associated with such additional investments and strategies that are not associated with FFR:
Emerging Markets Risk
Investments in securities issued by companies operating in emerging market countries involve additional risks relating to political, economic, or regulatory conditions not associated with investments in securities and instruments issued by U.S. companies or by companies operating in other developed market countries. Investments in emerging markets securities are generally considered speculative in nature and are subject to the following heightened risks: smaller market capitalization of securities markets which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; possible repatriation of investment income and capital; rapid inflation; and currency convertibility issues. Emerging market countries also often have less uniformity in accounting and reporting requirements, unsettled securities laws, unreliable securities valuation and greater risk associated with custody of securities. Furthermore, investors may be required to register the proceeds of sales and future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization or creation of government monopolies.
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Management Risk
PRME is subject to management risk because it is an actively managed portfolio. In managing PRME’s investment portfolio, the portfolio managers will apply investment techniques and risk analyses that may not produce the desired result. There can be no guarantee that PRME will meet its investment objective.
Non-Diversification Risk
PRME is classified as “non-diversified” under the 1940 Act. As a result, PRME is only limited as to the percentage of its assets which may be invested in the securities of any one issuer by the diversification requirements imposed by the Code. PRME may invest a relatively high percentage of its assets in a limited number of issuers. As a result, PRME may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, experience increased volatility and be highly invested in certain issuers.
Small Fund Risk
PRME currently has fewer assets than larger funds, and like other smaller funds, large inflows and outflows may impact PRME’s market exposure for limited periods of time. This impact may be positive or negative, depending on the direction of market movement during the period affected. If PRME fails to attract a large amount of assets, shareholders of PRME may incur higher expenses as PRME’s fixed costs would be allocated over a smaller number of shareholders.
Smaller Companies Risk
Small and/or mid capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price volatility than larger, more established companies as a result of several factors, including limited trading volumes, fewer products or financial resources, management inexperience and less publicly available information. Accordingly, such companies are generally subject to greater market risk than larger, more established companies.
Principal Risks Related to the Proposed Reorganization
The following are principal risks related to the proposed Reorganization:
Anticipated Benefits Risk
Although it is anticipated that the Reorganization will lead to certain benefits for PRME and FFR shareholders, we cannot assure you that these benefits, along with any other benefits that are anticipated from the Reorganization, will be realized.
Tax Risk
In addition to the foregoing risks of investing in FFR, tax risk is associated with the proposed Reorganization. PRME’s counsel is giving an opinion that the Reorganization will be a tax-free reorganization for federal income tax purposes. See “Information about the Reorganization – Federal Income Tax Consequences.” However, no ruling is being sought from the Internal Revenue Service (the “IRS”) to determine whether the IRS in fact agrees with the opinion of PRME’s counsel. The opinion of PRME’s counsel’s opinion is not binding upon the IRS, and the IRS could take a position different from that reflected in the opinion. The opinion does not address state or foreign tax consequences of the Reorganization, which could vary from state to state and country to country. The opinion relies upon the current statute and regulations, portions of which have been changed recently and have not yet been subject to full and complete interpretation by the courts. In addition, tax laws and rules may change in the future, and some changes may apply retroactively. The opinion only addresses current law.
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The tax opinion also relies on certain representations by the parties to the Reorganization as to current facts and future behavior. If such representations are not in fact correct, the Reorganization could be viewed as a taxable sale of the assets of PRME to FFR resulting in gain recognition to PRME. Under such circumstances, the shareholders of PRME would individually owe taxes on the gain recognized in the Reorganization, and potentially for their proportionate portion of the taxes of PRME. No reserves are being created to fund any such tax liability, and it is not anticipated that any portion of the distribution of shares will be designated as a capital gain distribution.
C. Information About the Reorganization
General
The Board of Trustees of PRME has unanimously approved, and the shareholders of PRME are being asked to approve, the Plan by and between First Trust ETF IV, on behalf of PRME, and First Trust ETF II, on behalf of FFR, and the transactions it contemplates, including the reorganization of PRME into FFR in exchange for shares of FFR, on a tax-free basis for federal income tax purposes as provided for herein. The Board of Trustees believes the Reorganization will allow PRME shareholders to hold shares in a fund with significantly greater assets while while allowing PRME’s shareholders the opportunity to continue their investment in a global real estate strategy. In addition, FFR is expected to maintain a lower total operating expense ratio than PRME following the Reorganization. The Board of Trustees of each Fund has determined that the proposed Reorganization is in the best interests of its respective Fund and that the interests of its respective Fund’s existing shareholders will not be diluted as a result of the transactions contemplated by the Reorganization.
The affirmative vote of a majority of the outstanding voting securities of PRME is required to approve the Plan. The “vote of a majority of the outstanding voting securities” is defined in the 1940 Act as the vote of the lesser of (i) 67% or more of the shares of the Fund present at the Meeting, if the holders of more than 50% of such outstanding shares are present in person or represented by proxy; or (ii) more than 50% of such outstanding shares of the Fund. Abstentions and broker non-votes will be treated as present for purposes of determining a quorum at the Meeting. Abstentions and broker non-votes will have the same effect as a vote against the approval of the Plan and the Reorganization it contemplates.
A copy of the Plan is attached hereto as Exhibit A for your reference.
Terms of the Reorganization
Pursuant to, and subject to the conditions contained in, the Plan, the proposed Reorganization seeks to combine the Funds, which have similar investment strategies and risks, but also have important distinctions. The Plan provides for the reorganization of PRME into FFR, pursuant to which PRME would (i) transfer all of its assets to FFR in exchange solely for newly issued shares of FFR and FFR’s assumption of all of the liabilities of PRME and (ii) immediately distribute such newly issued shares of FFR to PRME shareholders. As a result, all of the assets of PRME will be transferred to FFR and FFR will assume all of the liabilities of PRME, including without limitation PRME’s indemnification obligations to its trustees and officers. Shareholders of PRME will receive a number of FFR shares equal in value to the value of the PRME shares held as of the Valuation Time. Through the Reorganization, shares of PRME would be exchanged on a tax-free basis for federal income tax purposes for shares of FFR. In the event that shareholders of PRME do not approve the Reorganization, each Fund will continue to exist and operate on a stand alone basis.
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The newly issued FFR shares in the Reorganization will be distributed (either directly or through an agent) to PRME shareholders upon the conversion of their PRME shares by opening shareholder accounts on the share ledger records of FFR in the names of and in the amounts due to the shareholders of PRME based on their respective holdings in PRME as of the Valuation Time. Ownership of FFR shares will be shown on the books of FFR’s transfer agent, and FFR will not issue certificates representing FFR shares in connection with the reorganization, except for any global share certificate or certificates required by a securities depository in connection with the establishment of book-entry ownership of FFR shares.
If requested by FFR, PRME agrees, prior to the closing date of the reorganization, to attempt to dispose of assets that do not conform to FFR’s investment objectives, policies and restrictions. In addition, if it is determined that the PRME and the FFR portfolios, when aggregated, would contain investments exceeding certain percentage limitations imposed upon FFR with respect to such investments, PRME, if requested by FFR, will dispose of a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the closing date of the Reorganization. As a result of the disposition of its assets, PRME may declare a taxable distribution that, together with all previous distributions, will have the effect of distributing to PRME shareholders all of its net investment income and net realized capital gains, if any, net of brokerage commissions, through the date of the Reorganization. The sale of such investments may increase the taxable distribution to shareholders of PRME occurring prior to the Reorganization above that which they would have received absent the Reorganization. It is estimated that portfolio repositioning will result in transaction costs payable by PRME in advance of the Reorganization of approximately $1,700, or 0.08% of its net assets, based on average costs normally incurred in such transactions. As of May 1, 2019, First Trust believed that all of the securities held by PRME would be eligible investments for FFR.
The direct expenses incurred in connection with the Reorganization (whether or not the Reorganization is consummated) will be borne by First Trust. Direct Reorganization - related expenses include, without limitation: (a) expenses associated with the preparation and filing of this Proxy Statement/Prospectus and related proxy materials; (b) postage; (c) printing; (d) accounting fees; (e) legal fees; (f) solicitation costs; and (g) other related administrative or operational costs. First Trust estimates that the amount of direct expenses to be incurred by First Trust will be approximately $275,000.
The Plan may be terminated and the Reorganization abandoned due to (i) mutual agreement of First Trust ETF II, on behalf of FFR, and First Trust ETF IV, on behalf of PRME; (ii) a breach by the non-terminating party of any representation, or warranty, or agreement to be performed at or before the closing of the reorganization, if not cured within 30 days of the breach and prior to the closing; (iii) a condition precedent to the obligations of the terminating party that has not been met or waived and it reasonably appears that it will not or cannot be met; or (iv) a determination by the Board of Trustees of either PRME or FFR that the consummation of the transactions contemplated in the Plan is not in the best interests of its respective Fund involved in the transactions contemplated by the Plan.
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If the Proposal as presented in this Proxy Statement/Prospectus is approved at the Meeting, the Reorganization is expected to be completed shortly after the meeting.
Background and Trustees’ Considerations Relating to the Proposed Reorganization
On March 11, 2019, the Boards of Trustees of First Trust Exchange-Traded Fund IV, on behalf of PRME, and First Trust Exchange-Traded Fund II, on behalf of FFR, approved the Reorganization. (The Boards of Trustees of First Trust Exchange-Traded Fund IV and First Trust Exchange-Traded Fund II are comprised of the same five individuals and are referred to herein as the “Board.”) For the reasons discussed below, the Board determined that the proposed Reorganization would be in the best interests of PRME and FFR and that the interests of the existing shareholders of PRME and FFR would not be diluted as a result of the Reorganization.
The Board considered the Reorganization over the course of meetings held in January 2019 and March 2019. At those meetings, the Advisor, the investment adviser to both PRME and FFR, discussed with the Board its reasons for proposing the Reorganization. The Advisor noted that since PRME’s inception on November 11, 2015 through December 31, 2018, PRME has underperformed its benchmark and peer average, and that such underperformance has likely contributed to PRME’s difficulty in gathering assets. The Advisor noted that PRME’s assets have not exceeded $2 million at any time since the Fund’s inception. The Advisor further noted that PRME’s small asset size and low trading volume have led to increased bid/ask spreads, which in turn have increased trading costs for investors. Based on all the information reviewed, the Advisor expressed its view that reorganizing PRME into FFR was an attractive option, given the compatibility of the investment strategies of the two Funds, the lower net expense ratio and better historical performance of FFR, and the potential for improved trading and liquidity for PRME shareholders.
In advance of the meetings at which the Reorganization was discussed, the Advisor provided the Board with a variety of materials relating to the Reorganization, including the rationale for and expected benefits of the Reorganization and comparative information about the Funds. In connection with the meetings and prior to approving the Reorganization, the Trustees who are not “interested persons” (as defined in the 1940 Act) of PRME or FFR (the “Independent Trustees”) reviewed the information provided with the Advisor, reviewed with independent legal counsel applicable law and their duties in considering the Reorganization and met in private sessions without the Advisor present.
Based upon all the information provided and the discussions at the meetings, the Board, including all of the Independent Trustees, approved the Reorganization and recommends that shareholders of PRME vote to approve the Reorganization. In determining to approve the Reorganization and to recommend that shareholders vote to approve the Reorganization, the Board considered, among other things, the following factors:
· | Compatibility of Investment Objectives and Policies. The Board noted that, although PRME is an actively managed ETF that seeks to provide long-term total return while FFR is an index-based ETF that seeks to track an index, both Funds primarily invest in real estate securities traded on U.S. and non-U.S. exchanges, including REITs. The Board considered the significant overlap of the Funds’ current portfolio holdings and the Funds’ similar country exposures. The Board also considered that the index that FFR seeks to track serves as the benchmark for PRME. |
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· | Comparison of Fees and Expense Ratios; Expense Savings. The Board considered comparative expense information for PRME and FFR, including comparisons between the current advisory fee rates and expense ratios for PRME and FFR and the estimated pro forma advisory fee rate and expense ratio of the combined fund. The Board noted that FFR’s advisory fee rate would not change as a result of the Reorganization. The Board considered that FFR’s total expenses are capped 35 basis points lower than PRME’s unitary management fee through January 31, 2020, which will result in immediate expense savings for PRME shareholders following the Reorganization. The Board noted the Advisor’s statement that it plans to propose the extension of the current expense cap until January 31, 2021 in connection with the renewal of FFR’s advisory agreement in June 2019. The Board considered that any expense savings for FFR after the Reorganization would initially benefit the Advisor by reducing the amount of the fees to be waived or expenses to be reimbursed by the Advisor for FFR. |
· | Expenses of the Reorganization. The Board noted that the Advisor proposed to bear the direct costs of the Reorganization, including costs associated with proxy solicitation. The Board also noted the indirect costs to be borne by PRME as a result of portfolio repositioning prior to the Reorganization. The Board considered the Advisor’s estimate that, based on estimated annual expense savings as a result of the Reorganization, shareholders of PRME were expected to recoup the indirect Reorganization costs within three months of the completion of the Reorganization. |
· | Potential Improved Trading and Liquidity. The Board considered the larger asset size and trading volume of FFR as compared to PRME and that PRME shareholders may benefit from becoming shareholders of a larger fund with higher trading volume, potentially resulting in improved liquidity and narrower bid-ask spreads. |
· | Fund Performance and Distribution Rates. The Board reviewed the historical performance of PRME and FFR, noting that FFR has outperformed PRME over the one- and three-year periods ended December 31, 2018 and has outperformed PRME since PRME’s inception through December 31, 2018. The Board also received information comparing the Funds’ distribution rates and noted that FFR’s current distribution rate is higher than PRME’s current distribution rate. |
· | Portfolio Management. The Board noted that Heitman serves as investment sub-adviser to PRME and two Heitman affiliates serve as investment sub-sub-advisers to PRME, and that FFR is managed by the Advisor’s Investment Committee. The Board noted that the Advisor’s Investment Committee would continue to manage FFR following the closing of the Reorganization. |
· | Anticipated Tax-Free Reorganization; Capital Loss Carryforwards. The Board noted the Advisor’s statement that the Reorganization will be structured with the intention that it qualify as a tax-free reorganization for federal income tax purposes and that PRME and FFR will obtain an opinion of counsel substantially to this effect (based on certain factual representations and certain customary assumptions). In addition, the Board noted the Advisor’s statement that PRME’s capital loss carryforwards could be transferred in the Reorganization, which, subject to certain limitations, could then be used by FFR. |
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· | Terms and Conditions of the Reorganization. The Board considered the terms and conditions of the Reorganization and whether the Reorganization would result in the dilution of the interests of existing shareholders of PRME and FFR in light of the basis on which shares of FFR would be issued to shareholders of PRME. |
Based upon on all of the foregoing considerations, the Board approved the proposed Plan and the Reorganization contemplated thereby and determined that the proposed Reorganization would be in the best interests of PRME and FFR. The Board also determined that the interests of the existing shareholders of PRME and FFR would not be diluted as a result of the Reorganization. The Board of PRME, including the Independent Trustees, unanimously recommends that shareholders of PRME approve the Plan and the Reorganization.
Capitalization
The following table sets forth the unaudited capitalization of each Fund as of January 31, 2019, and the pro forma combined capitalization of FFR as if the Reorganization had occurred on such date. The following is for informational purposes only. No assurance can be given as to how many shares of FFR will be received by the shareholders of PRME on the date the Reorganization takes place, and the foregoing should not be relied upon to reflect the number of shares of FFR that actually will be received on or after such date.
PRME | FFR | Pro Forma Adjustments | FFR Pro Forma Combined Fund(1) | |
---|---|---|---|---|
Shareholders’ Equity: | ||||
Shares, $0.01 par value per share, 100,002 shares outstanding for PRME, 1,050,002 shares outstanding for FFR, 1,093,382 shares outstanding for FFR Pro Forma Combined Fund(2) | $1,000 | $10,500 | $(566) | $10,934(2) |
Paid-in Surplus | 2,120,164 | 44,323,479 | 566 | 46,444,209 |
Accumulated distributable earnings (loss) | (107,878) | 4,401,541 | 4,293,663(3) | |
Net Assets | $2,013,286 | $48,735,520 | $0 | $50,748,806(4) |
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(1) | The adjusted balances are presented as if the Reorganization were effective as of January 31, 2019 for information purposes only. The actual closing date of the Reorganization is expected to be promptly after shareholder approval of the Reorganization, at which time the results would be reflective of the actual composition of shareholders’ equity at that date. |
(2) | Assumes the issuance of 43,380 of FFR shares in the Reorganization which number is based on the net asset value of the FFR shares and the net asset value of PRME common shares, as of January 31, 2019. The issuance of such number of FFR Shares would result in the distribution of approximately 0.4337 shares of FFR for each share of PRME, based on the net asset values of FFR shares and PRME shares as of January 31, 2019. |
(3) | PRME carries forward all of its net realized losses from investment transactions to FFR. Realized capital losses are historically allowed to be carried forward for eight tax years. Limitations under the applicable tax regulations will apply to Reorganization losses. |
(4) | Includes the impact of estimated indirect Reorganization costs of $1,700 for PRME. |
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Description of the Shares to be Issued by FFR
General. As a general matter, the shares of PRME and FFR have similar voting rights and the same rights with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of their respective Fund and have no rights to cumulative voting. Holders of whole shares of each Fund are entitled to one vote per share on any matter on which the shares are entitled to vote, while each fractional share is entitled to a proportionate fractional vote. Furthermore, the provisions set forth in the Declaration of Trust of First Trust ETF IV are substantially the same as the provisions set forth in the Declaration of Trust of First Trust ETF II. See “Additional Information About PRME and FFR – Charter Documents” below for additional discussion of each Fund’s charter documents.
Under the charter documents of PRME, shareholders of PRME are not entitled to dissenter’s rights of appraisal with respect to the reorganization of PRME into FFR. Shareholders of PRME, however, may sell their shares on the NYSE Arca until the closing date of the Reorganization. After the Reorganization, PRME shareholder will hold shares of FFR, which may also be sold on the NYSE Arca, as described in FFR’s prospectus.
The shares of PRME are currently listed and traded on the NYSE Arca under the symbol PRME. If the Reorganization is consummated, PRME shares will no longer be listed on the NYSE Arca and PRME will be dissolved, liquidated and terminated as provided in the Plan. The shares of FFR are currently listed and traded on NYSE Arca under the symbol FFR. Reports, proxy materials and other information concerning PRME and FFR may be inspected at the offices of the NYSE Arca.
The FFR shares, when issued in the Reorganization, will be fully paid and non-assessable and have no rights to cumulative voting. Shareholders of FFR have no preference, preemptive, conversion or exchange rights, except as the Trustees may determine from time to time.
Distributions and Dividend Reinvestment Plan. PRME distributes its net investment income monthly and its net realized capital gains at least annually, if any. FFR distributes its net investment income quarterly and its net realized capital gains at least annually, if any. FFR has a higher common share distribution rate than PRME. FFR has not established a dividend reinvestment plan, but dividends may be reinvested automatically in additional FFR shares if the broker through whom you hold such shares makes this option available. Such shares will generally be reinvested by the broker based upon the market price of those shares and investors may be subject to brokerage commissions charged by the broker.
Federal Income Tax Consequences
As a condition to each Fund’s obligation to consummate the Reorganization, each Fund will receive a tax opinion from Chapman and Cutler LLP (which opinion would be based on certain factual representations and certain customary assumptions), to the effect that, on the basis of the existing provisions of the Code, current administrative rules and court decisions, for federal income tax purposes:
(a) the transfer of all PRME’s assets to FFR in exchange solely for FFR shares and the assumption by FFR of all the liabilities of PRME immediately followed by the pro rata, by class, distribution to PRME shareholders of all FFR shares received by PRME in complete liquidation of PRME and the termination of PRME as soon as practicable thereafter will constitute a “reorganization” within the meaning of Section 368(a) of the Code and FFR and PRME will each be a “party to a reorganization,” within the meaning of Section 368(b) of the Code, with respect to the Reorganization;
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(b) no gain or loss will be recognized by FFR upon the receipt of all the assets of PRME solely in exchange for FFR shares and the assumption by FFR of all the liabilities of PRME;
(c) no gain or loss will be recognized by PRME upon the transfer of all PRME’s assets to FFR solely in exchange for FFR shares and the assumption by FFR of all the liabilities of PRME or upon the distribution (whether actual or constructive) of such FFR shares to PRME shareholders solely in exchange for such shareholders’ shares of PRME in complete liquidation of PRME;
(d) no gain or loss will be recognized by PRME shareholders upon the exchange of their PRME shares solely for FFR shares in the Reorganization;
(e) the aggregate basis of FFR shares received by each PRME shareholder pursuant to the Reorganization will be the same as the aggregate basis of the PRME shares exchanged therefor by such shareholder. The holding period of the FFR shares received by each PRME shareholder in the Reorganization will include the period during which the PRME shares exchanged therefor were held by such shareholder, provided such PRME shares are held as capital assets at the time of the Reorganization; and
(f) the basis of PRME’s assets transferred to FFR will be the same as the basis of such assets in the hands of PRME immediately before the effective time of the Reorganization. The holding period of the assets of PRME received by FFR will include the period during which such assets were held by PRME.
No opinion will be expressed as to (1) the effect of the Reorganization on PRME, FFR or any PRME Shareholder with respect to any asset (including, without limitation, any stock held in a passive foreign investment company as defined in Section 1297(a) of the Code) as to which any unrealized gain or loss is required to be recognized under federal income tax principles (a) at the end of a taxable year (or on the termination thereof) or (b) upon the transfer of such asset regardless of whether such transfer would otherwise be a non-taxable transaction under the Code, or (2) any other federal tax issues (except those set forth above) and all state, local or foreign tax issues of any kind.
While PRME shareholders are not expected to recognize any gain or loss upon the exchange of their shares in the Reorganization, differences in the Funds’ portfolio turnover rates, net investment income and net realized capital gains may result in future taxable distributions to shareholders arising indirectly from the Reorganization.
If the Proposal presented herein is approved by the shareholders of PRME, PRME will declare a distribution to its shareholders of all undistributed realized net investment income (computed without regard to the deduction for dividends paid) and undistributed realized net capital gains (after reduction by any capital loss carryforwards) prior to the closing of the reorganization, and such distributions will be taxable to shareholders of PRME.
This description of the federal income tax consequences of the Reorganization is made without regard to the particular facts and circumstances of any shareholder. Shareholders are urged to consult their own tax advisors as to the specific consequences to them of the Reorganization, including the applicability and effect of state, local, non-U.S. and other tax laws.
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D. Additional Information About the Investment Policies
General Comparison of PRME and FFR
The investment strategies of PRME and FFR are similar, but have some important distinctions. PRME is an actively managed ETF whose primary investment objective is to provide long-term total return. FFR is an index-based ETF whose primary investment objective is to achieve investment results that correspond generally to the price and yield (before FFR’s fees and expenses) of the Index.
PRME will seek to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in U.S. and non-U.S. exchange-traded real estate securities, which includes REITs, REOCs, and common stocks or depositary receipts of companies primarily engaged in the real estate industry. FFR will seek to achieve its investment objective by normally investing at least 90% of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the Index. The Index is modified market cap weighted based on free float market capitalization and includes the securities of real estate companies or REITs that are publicly traded on an official stock exchange located in North America, Europe or Asia and provides an audited annual report in English.
PRME has elected to be classified as a non-diversified fund and as a result may invest a relatively high percentage of its assets in a limited number of issuers. FFR has elected to be classified as a diversified fund. With certain exceptions, a diversified fund may not, with respect to 75% of its total assets, invest more than 5% of total assets in the securities of a single issuer or invest in more than 10% of the outstanding voting securities of such issuer.
Similar to most ETFs, PRME and FFR trade their shares on a securities exchange, and persons wishing to buy or sell shares generally may do so through a broker-dealer and pay and receive the market price per share (plus or minus any applicable commissions). ETFs also issue and redeem shares on a continuous basis, at net asset value, in Creation Units. Creation Units of PRME and FFR will generally be issued and redeemed in-kind for securities in which PRME and FFR invest, respectively. Except when aggregated in Creation Units, PRME and FFR shares are not redeemable securities. For more information on the procedures for purchasing and redeeming Creation Units of FFR, please see “”Purchase, Redemption and Pricing of Shares” in the Reorganization SAI.
These ETF features are designed to protect ongoing shareholders from adverse effects that could arise from frequent cash creation and redemption transactions such as those that occur in a conventional mutual fund. In conventional mutual funds, redemptions can have an adverse tax impact on taxable shareholders because of a mutual fund’s frequent need to sell portfolio securities to obtain cash to meet fund redemptions. These sales may generate taxable gains for the shareholders of the mutual fund, whereas the in-kind Creation Unit redemption mechanism of PRME and FFR generally will not lead to a tax event for the Funds or their ongoing shareholders. As a practical matter, only broker-dealers or large institutional investors with creation and redemption agreements, called “Authorized Participants,” can purchase or redeem these Creation Units. Shares of PRME and FFR are traded on the NYSE Arca to provide liquidity for purchasers of PRME or FFR shares in amounts less than the size of a Creation Unit. The market price of PRME and FFR shares on the NYSE Arca may be equal to, more or less than the net asset value per share, but shares of ETFs typically trade in a range close to net asset value per share.
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PRME and FFR shares are not subject to any 12b-1 distribution and service fees. The Board of Trustees of First Trust ETF IV, of which PRME is a series, and First Trust ETF II, of which FFR is a series, have adopted Distribution and Service Plans pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plans, PRME and FFR are authorized to pay an amount up to 0.25% of their average daily net assets each year, respectively, to reimburse FTP for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are authorized participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services. No 12b-1 fees are currently paid by PRME or FFR, and PRME will not impose these fees prior to March 31, 2020 and FFR will not impose these fees prior to January 31, 2020. However, in the event 12b-1 fees are charged in the future, because these fees are paid out of PRME’s and FFR’s assets, respectively, over time these fees would increase the cost of an investment in PRME or FFR and may cost shareholders more than certain other types of sales charges.
Principal Investment Strategies of FFR
FFR will normally invest at least 90% of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the Index. FFR, using an indexing investment approach, attempts to replicate, before fees and expenses, the performance of the Index. FFR’s investment advisor seeks a correlation of 0.95 or better (before fees and expenses) between FFR’s performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Index is compiled and maintained by FTSE.
The Index is designed to measure the stock performance of companies engaged in specific real estate activities, including the ownership, trading and development of income-producing real estate, in the North American, European and Asian real estate markets. The Index is modified market cap weighted based on free float market capitalization and includes the securities of real estate companies or REITs that are publicly traded on an official stock exchange located in North America, Europe or Asia and provides an audited annual report in English. The securities must also meet certain size and liquidity tests to be included in the Index.
The Index is rebalanced and reconstituted quarterly and FFR will make corresponding changes to its portfolio shortly after the Index changes are made public. FFR will be concentrated in an industry or a group of industries to the extent that the Index is so concentrated. As of December 31, 2018, FFR had significant investments in real estate companies.
Principal Investments of FFR
Equity Securities. FFR invests in equity securities, including common stocks and depositary receipts. Common stock represents an equity ownership interest in issuers. Holders of common stock are entitled to the income and increase in the value of the assets and business of the issuers after all debt obligations and obligations to preferred stockholders are satisfied. Depositary receipts are certificates typically issued by a bank or trust company that represent ownership interests in securities of non-U.S. companies. Depositary receipts may or may not be jointly sponsored by the underlying issuer.
Principal Investment Strategies of PRME
Under normal market conditions, PRME will seek to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in U.S. and non-U.S. exchange-traded real estate securities, which includes REITs, REOCs and common stocks or depositary receipts of companies primarily engaged in the real estate industry. Accordingly, PRME is concentrated in REITs and/or real estate management and development companies (including REOCs), sub-industries of the real estate industry group. Real estate management and development companies generally derive at least 50% of their revenue from, or have at least 50% of their assets invested in, real estate, including the ownership, construction, management, or sale of real estate. PRME will not invest directly in real estate.
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PRME seeks to provide investors access to a real estate securities portfolio consisting of shares of public companies with professional management teams that own top-tier, prime properties in the world’s dominant cities. “Prime” markets and cities are some of the world’s top cities which are recognized as “global gateway” markets that benefit from global physical and/or financial trade, have high barriers to entry, dominate their regions or countries, or provide high value niche goods and services. The key factors are location, physical specification, sustainability, tenant quality, and income stability. In practice, prime assets are also ones that are competitively sought after and command high values in both absolute and relative terms, resulting in relatively low cap rates.
PRME’s portfolio managers will select Real Estate Securities by implementing an investment process that is outlined below:
As a first screen, all securities in the Global Industry Classification Standard (GICS®) real estate industry are filtered for size and liquidity, based upon free float market capitalization for size and a threshold daily trading volumes for liquidity. The purpose of these quantitative screens is to ensure that the investment strategy can be executed in a buy and hold manner without undue stress.
In the second stage, screening is conducted using a combination of qualitative and quantitative tools. From a qualitative perspective, portfolio analysts maintain a close coverage universe and are in regular contact with the management of potential Real Estate Securities issuers, regularly visiting properties and markets to see as many of the properties in person as is reasonably possible. In addition to their own research, the analysts have access to other property experts and sell-side professionals within their organizations who also evaluate their companies. The task of the analysts is to identify those companies that meet the test of two quantitative filters. The issuers in which the Fund invests must generally have (1) more than 75% of their gross asset value in prime markets and (2) more than 50% of their assets under management in prime assets.
Executing the quantitative and qualitative screens produces a universe of companies that meet the size, liquidity, and concentration in prime markets and assets tests. From this universe of prime assets and markets, the portfolio managers’ regional teams construct a high conviction portfolio that, in the opinion of the portfolio managers, offers the best expected risk/return profile of the names within the prime universe. Consideration for inclusion in the portfolio includes the issuer’s balance sheet, assessment of management’s acumen and the projected long-term growth profile of the company.
PRME invests in REITs and REOCs, companies that own and often manage income-generating real estate. REITs distribute most of their income to investors and therefore receive special tax considerations and are typically a highly liquid method of investing in real estate. REOCs, on the other hand, reinvest most income into their operations and therefore do not get the same benefits of lower corporate taxation that are a common characteristic of REITs.
PRME typically invests in 25 to 100 Real Estate Securities issued by small, mid and large capitalization companies. PRME invests in securities of issuers domiciled or operating in Asia and Europe, as well as other non-U.S. issuers, including those in emerging market countries. PRME intends to invest at least 40% of its net assets in securities of non-U.S. issuers and in issuers domiciled or operating in at least three different countries.
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PRME is classified as “non-diversified” under the 1940 Act and as a result may invest a relatively high percentage of its assets in a limited number of issuers. PRME is only limited as to the percentage of its assets which may be invested in the securities of any one issuer by diversification requirements imposed by the Code. As of January 31, 2019, PRME had significant investments in real estate companies.
Principal Investments of PRME
REITs and REOCs. PRME invests in publicly traded REITs and REOCs, companies that own and often manage income-generating real estate. Some REITs and REOCs make or invest in loans and other obligations that are secured by real estate collateral. REITs distribute most of their income to investors and therefore receive special tax considerations and are typically a highly liquid method of investing in real estate. REOCs, on the other hand, reinvest most income into their operations and therefore do not get the same benefits of lower corporate taxation that are a common characteristic of REITs.
REITs and REOCs are generally categorized as equity, mortgage or hybrid in nature. Equity REITs and REOCs invest in and own properties, and thus are responsible for the equity or value of their real estate assets. Their revenues come principally from their properties’ rents. Mortgage REITs and REOCs deal in investment and ownership of property mortgages. These companies loan money for mortgages to owners of real estate or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans. Hybrid REITs and REOCs combine the investment strategies of equity REITs and REOCs and mortgage REITs and REOCs by investing in both properties and mortgages.
Equity Securities. PRME invests in equity securities, including common stocks and depositary receipts. Common stock represents an equity ownership interest in issuers. Holders of common stock are entitled to the income and increase in the value of the assets and business of the issuers after all debt obligations and obligations to preferred stockholders are satisfied. Depositary receipts are certificates typically issued by a bank or trust company that represent ownership interests in securities of non-U.S. companies. Depositary receipts may or may not be jointly sponsored by the underlying issuer.
Non-U.S Investments. PRME may invest in securities issued by non-U.S. companies that are traded over-the-counter or listed on an exchange or in the form of depositary receipts. Non-U.S. investments include securities issued or guaranteed by companies organized under the laws of countries other than the United States, including companies domiciled in emerging markets, and securities issued or guaranteed by foreign governments, their agencies or instrumentalities and supra-national governmental entities, such as the World Bank. Non-U.S. investments may be traded on foreign securities exchanges or in over-the-counter capital markets. Many foreign companies issue both foreign currency and U.S. dollar-denominated securities. PRME may also invest in American Depositary Receipts (“ADRs”) or Global Depositary Receipts (“GDRs”), or other securities representing underlying securities of foreign issuers.
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Proposal
The Proposal to be submitted to the shareholders of First Trust Heitman Global Prime Real Estate ETF at the Meeting is as follows:
To approve an Agreement and Plan of Reorganization by and between First Trust ETF IV, on behalf of First Trust Heitman Global Prime Real Estate ETF, and First Trust ETF II, on behalf of First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund, pursuant to which First Trust Heitman Global Prime Real Estate ETF would (i) transfer all of its assets to First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund in exchange solely for newly issued shares of First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund and First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund’s assumption of all of the liabilities of First Trust Heitman Global Prime Real Estate ETF and (ii) immediately distribute such newly issued shares of FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund to First Trust Heitman Global Prime Real Estate ETF shareholders (collectively, the “Reorganization”).
For the forgoing reasons, the Board of Trustees of PRME recommends that PRME shareholders vote FOR approval of the Plan and the Reorganization it contemplates.
* * * *
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ADDITIONAL INFORMATION ABOUT PRME AND FFR
Charter Documents.
PRME is a non-diversified series of First Trust ETF IV, a Massachusetts business trust governed by Massachusetts law. FFR is a diversified series of First Trust ETF II, a Massachusetts business trust governed by Massachusetts law. Each of First Trust ETF II and First Trust ETF IV is governed by an Amended and Restated Declaration of Trust, dated as of June 12, 2017 (each, a “Declaration”) and the Declaration of ETF IV is substantially identical to the Declaration of ETF II. Additional information about each of the Declarations is provided below.
Shares of beneficial interest of each Fund entitle their holders to one vote per share and fractional shares entitle their holders to a proportionate fractional vote. First Trust ETF IV and First Trust ETF II are permitted to have more than one series, and currently there are nine series of First Trust ETF IV and sixteen series of First Trust ETF II existing in addition to PRME and FFR, respectively. In some circumstances, all of the series vote together, but a separate vote will be taken by the shareholders of PRME and FFR on matters affecting PRME and FFR, respectively, as a series when so required under the 1940 Act or when the Board of Trustees of PRME or FFR has determined that the matter affects only the interests of the shareholders of PRME or FFR, respectively. If a matter affects only a particular series of First Trust ETF IV or First Trust ETF II and does not affect PRME or FFR, respectively, only the required vote by that applicable series shall be required. For example, a change in a fundamental investment policy for PRME would be voted upon only by shareholders of PRME.
Neither Fund is required to hold annual meetings of shareholders under its Declaration. Shareholder meetings of First Trust ETF IV and First Trust ETF II must be called when required by the 1940 Act to elect Trustees. Shareholder meetings of PRME and FFR may be called by a majority of the Trustees of First Trust ETF IV and First Trust ETF II, respectively. Shareholder meetings of PRME and FFR shall be called by the Secretary of First Trust ETF IV or First Trust ETF II, respectively, upon the order of the Trustees of First Trust ETF IV or First Trust ETF II upon the written request of the shareholders holding shares of PRME or FFR, respectively, representing in the aggregate not less than one-third of the voting power of the outstanding shares of PRME or FFR, respectively, entitled to vote on the matters specified in such written request provided that (i) such request shall state the purposes of such meeting and the matters proposed to be acted on, and (ii) the shareholders of PRME or FFR requesting such meeting shall have paid to First Trust ETF IV or First Trust ETF II, respectively, the reasonably estimated cost of preparing and mailing the notice thereof, which the Secretary shall determine and specify to such shareholders.
Neither Fund’s shares have preemptive rights. However, under each Fund’s Declaration, the Trustees have the power to authorize from time to time, such preference, preemptive, conversion or exchange rights as the Trustees may determine. Mutual funds, in general, issue shares that can be redeemed or sold back to the fund at the fund’s net asset value per share (less any applicable redemption fee or sales charge). Unlike conventional mutual funds, ETFs like PRME and FFR issue and redeem shares on a continuous basis, at net asset value, only in large specified blocks of shares (each a “Creation Unit”). Creation Units of PRME and FFR will generally be issued and redeemed in-kind for securities in which PRME or FFR, respectively, invest. A Creation Unit of PRME and FFR consists of 50,000 shares. PRME and FFR shares are not individually redeemable securities of PRME and FFR, respectively, except when aggregated as Creation Units. Shares of PRME and FFR are listed and traded on NYSE Arca under the ticker symbol “PRME” and “FFR,” respectively, to provide liquidity for individual shareholders of PRME and FFR shares in amounts less than the size of a Creation Unit.
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Shareholders of PRME are entitled to dividends as declared by its Trustees, and if First Trust ETF IV were liquidated, each shareholder of PRME would be entitled to receive pro rata the distributable assets of First Trust ETF IV attributable to shares of PRME. Shareholders of FFR are entitled to dividends as declared by its Trustees, and if First Trust ETF II were liquidated, each shareholder of FFR would be entitled to receive pro rata the distributable assets of First Trust ETF II attributable to shares of FFR. Each of PRME and FFR distribute their net investment income monthly and their net realized capital gains at least annually, if any.
Under Massachusetts law, shareholders of a Massachusetts business trust could, in certain circumstances, be held personally liable for the obligations of a Fund. However, each of the Declarations contains an express disclaimer of shareholder liability for any debts, liability or obligation or expense incurred by, contracted for, or otherwise existing with respect to the respective Fund and requires that notice of such limited liability be given in each agreement, obligation or instrument entered into or executed by the Funds or the Trustees. Each of the Declarations further provides for indemnification for all claims and liabilities of any shareholder held personally liable for the obligations of a Fund solely by reason of being or having been a shareholder of the Fund.
As noted above, First Trust ETF IV and First Trust ETF II issue their shares in more than one series. Each of the Declarations authorize the issuance of classes of shares. All consideration received by PRME or FFR for the issue or sale of shares of PRME or FFR, respectively, together with all assets in which such consideration is invested or reinvested, and all income, earnings, profits and proceeds, including proceeds from the sale, exchange or liquidation of assets, are held and accounted for separately from the other assets of First Trust ETF IV and First Trust ETF II, subject only to the rights of creditors of PRME or FFR, respectively, and belong irrevocably to PRME or FFR for all purposes. Additional series of First Trust ETF IV or First Trust ETF II may be established by the Trustees of First Trust ETF IV or First Trust ETF II, respectively, from time to time. Shares of PRME or FFR may be issued in classes, with such relative rights and preferences as may be determined by the Trustees from time to time.
In general, the Declarations of both First Trust ETF IV and First Trust ETF II require a shareholder vote only on those matters where the 1940 Act requires a vote of shareholders and otherwise permits the Trustees to take actions without seeking the consent of shareholders. Both Declarations give the Trustees broad authority to approve reorganizations between PRME or FFR, as the case may be, and another entity or the sale of all or substantially all of the Fund’s assets without shareholder approval if the 1940 Act would not require such approval. Because of certain differences between PRME and FFR, the 1940 Act requires that the Reorganization be approved by the affirmative vote of the “majority of the outstanding voting securities” of PRME as described above. Under the First Trust ETF II Declaration, a reorganization required by the 1940 Act to be approved by shareholders would need the affirmative vote of the “majority of the outstanding voting securities” as described above. The 1940 Act does not require the approval of shareholders of FFR for the Reorganization.
Both Declarations permit amendments to the Declaration to be made by the Trustees, without shareholder vote.
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First Trust ETF IV is not required to hold annual meeting of shareholders, and each Trustee is elected to serve until the next meeting of shareholders is called for the purpose of considering the election or re-election of such Trustee or of a successor Trustee. First Trust ETF II is not required to hold annual meeting of shareholders, and each Trustee is elected to serve until the next meeting of shareholders is called for the purpose of considering the election or re-election of such Trustee or of a successor Trustee. Except as required by the 1940 Act or NYSE Arca rules or as described above, the Declarations do not require the Trustees of First Trust ETF IV (of which PRME is a series) and of First Trust ETF II (of which FFR is a series) to call meetings of the shareholders for the election or re-election of Trustees. Subject to the limits of the 1940 Act, any vacancies on the Board of Trustees may be filled by a majority of the Trustees then in office. The Declarations provide that, subject to the limits of the 1940 Act and with the exception of certain limited circumstances, any Trustee of First Trust ETF IV or First Trust ETF II may be removed from office only (i) by action of at least two-thirds of the outstanding shares of the respective Fund, or (ii) by the action of at least two-thirds of the remaining Trustees.
Quorum for a shareholder meeting of First Trust ETF IV (of which PRME is a series) and First Trust ETF II (of which FFR is a series) is the presence in person or by proxy of 33-1/3% of the voting power of the outstanding shares entitled to vote or, when a matter requires a separate vote by series or class, then 33-1/3% of the voting power of the aggregate number of outstanding shares of that series or class entitled to vote shall constitute a quorum as to the matter being voted upon by that series or class.
The foregoing is a very general summary of certain provisions of the Declarations governing FFR and PRME. Please see the charter documents themselves for additional information.
Independent Registered Public Accounting Firm (“Auditor”)
Deloitte & Touche LLP serves as Auditor for both PRME and FFR.
Fund Service Providers
Brown Brothers Harriman & Co., 50 Post Office Square, Boston, Massachusetts 02110, acts as the administrator, accounting agent, custodian and transfer agent to PRME. The Bank of New York Mellon, 240 Greenwich Street, New York, New York 10007, acts as the administrator, accounting agent, custodian and transfer agent to FFR. Chapman and Cutler LLP, 111 West Monroe Street, Chicago, Illinois 60603, serves as legal counsel to both PRME and FFR.
Federal Tax Matters Associated with an Investment in FFR
This section summarizes some of the main U.S. federal income tax consequences of owning shares of FFR. This section is current as of the date of this Proxy Statement/Prospectus. Tax laws and interpretations change frequently, and these summaries do not describe all of the tax consequences to all taxpayers. For example, these summaries generally do not describe an investor’s situation if the investor is a corporation, a non-U.S. person, a broker-dealer, or other investor with special circumstances. In addition, this section does not describe an investor’s state, local or non-U.S. tax consequences.
This federal income tax summary is based in part on the advice of counsel to FFR. The Internal Revenue Service could disagree with any conclusions set forth in this section. In addition, counsel to FFR was not asked to review, and has not reached a conclusion with respect to, the federal income tax treatment of the assets to be included in FFR. This may not be sufficient for an investor to use for the purpose of avoiding penalties under federal tax law. As with any investment, each investor should seek advice based on the investor’s individual circumstances from the investor’s own tax advisor.
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Fund Status. FFR intends to continue to qualify or qualify as a “regulated investment company” under the federal tax laws. If FFR qualifies as a regulated investment company and distributes its income as required by the tax law, the Fund generally will not pay federal income taxes.
Distributions. FFR’s distributions are generally taxable. After the end of each year, an investor will receive a tax statement that separates the distributions of FFR into two categories, ordinary income distributions and capital gain dividends. Ordinary income distributions are generally taxed at the investor’s ordinary tax rate, however, as further discussed below, certain ordinary income distributions received from FFR may be taxed at the capital gains tax rates. Generally, an investor will treat all capital gains dividends as long-term capital gains regardless of how long the investor has owned FFR shares. To determine an investor’s actual tax liability for the investor’s capital gain dividends, the investor must calculate the investor’s total net capital gain or loss for the tax year after considering all of the investor’s other taxable transactions, as described below. In addition, FFR may make distributions that represent a return of capital for tax purposes and thus will generally not be taxable to the investor; however, such distributions may reduce the investor’s tax basis in the investor’s shares, which could result in the investor having to pay higher taxes in the future when shares are sold, even if the investor sells the shares at a loss from the investor’s original investment. The tax status of an investor’s distributions from FFR is not affected by whether the investor reinvests the investor’s distributions in additional shares or receive them in cash. The income from FFR that an investor must take into account for federal income tax purposes is not reduced by amounts used to pay a deferred sales fee, if any. The tax laws may require an investor to treat distributions made to the investor in January as if the investor had received them on December 31 of the previous year.
Income from FFR may also be subject to a 3.8% “Medicare tax.” This tax generally applies to an investor’s net investment income if the investor’s adjusted gross income exceeds certain threshold amounts, which are $250,000 in the case of married couples filing joint returns and $200,000 in the case of single individuals.
Dividends Received Deduction. A corporation that owns shares generally will not be entitled to the dividends received deduction with respect to dividends received from the Fund because the dividends received deduction is generally not available for distributions from regulated investment companies. However, certain ordinary income dividends on shares that are attributable to qualifying dividends received by FFR from certain corporations may be reported by FFR as being eligible for the dividends received deduction.
Capital Gains and Losses and Certain Ordinary Income Dividends. If an investor is an individual, the maximum marginal stated federal tax rate for net capital gain is generally 20% (15% or 0% for taxpayers with taxable income below certain thresholds). Some capital gains, including some portion of the investor’s capital gain dividends may be taxed at a higher maximum stated tax rate. Capital gains may also be subject to the Medicare tax described above.
Net capital gain equals net long-term capital gain minus net short-term capital loss for the taxable year. Capital gain or loss is long-term if the holding period for the asset is more than one year and is short-term if the holding period for the asset is one year or less. An investor must exclude the date the investor purchases shares to determine the investor’s holding period. However, if the investor receives a capital gain dividend from FFR and sells the investor’s shares at a loss after holding it for six months or less, the loss will be recharacterized as long-term capital loss to the extent of the capital gain dividend received. The tax rates for capital gains realized from assets held for one year or less are generally the same as for ordinary income. The Code treats certain capital gains as ordinary income in special situations.
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Ordinary income dividends received by an individual shareholder from a regulated investment company such as FFR are generally taxed at the same rates that apply to net capital gain (as discussed above), provided certain holding period requirements are satisfied and provided the dividends are attributable to qualifying dividends received by FFR itself. FFR will provide notice to its shareholders of the amount of any distribution which may be taken into account as a dividend which is eligible for the capital gains tax rates.
Sale of Shares. If an investor sells or redeems shares, the investor will generally recognize a taxable gain or loss. To determine the amount of this gain or loss, the investor must subtract the investor’s tax basis in the investor’s shares from the amount the investor receives in the transaction. An investor’s tax basis in the investor’s shares is generally equal to the cost of the investor’s shares, generally including sales charges. In some cases, however, an investor may have to adjust the investor’s tax basis after purchasing shares.
Taxes on Purchase and Redemption of Creation Units. If an investor exchanges equity securities for Creation Units the investor will generally recognize a gain or a loss. The gain or loss will be equal to the difference between the market value of the Creation Units at the time and the investor’s aggregate basis in the securities surrendered and the cash component paid. If an investor exchanges Creation Units for equity securities, the investor will generally recognize a gain or loss equal to the difference between the investor’s basis in the Creation Units and the aggregate market value of the securities received and the Cash Redemption Amount. The Internal Revenue Service, however, may assert that a loss realized upon an exchange of securities for Creation Units or Creation Units for securities cannot be deducted currently under the rules governing “wash sales,” or on the basis that there has been no significant change in economic position.
Deductibility of Fund Expenses. Expenses incurred and deducted by FFR will generally not be treated as income taxable to investors. In some cases, however, an investor may be required to treat the investor’s portion of these Fund expenses as income. In these cases the investor may be able to take a deduction for these expenses. However, certain miscellaneous itemized deductions, such as investment expenses, may be deducted by individuals only to the extent that all of these deductions exceed 2% of the individual’s adjusted gross income. Some individuals may also be subject to further limitations on the amount of their itemized deductions, depending on their income.
Non-U.S. Tax Credit. Because FFR may invest in non-U.S. securities, the tax statement that an investor receives may include an item showing non-U.S. taxes the Fund paid to other countries. In this case, dividends taxed to the investor will include the investor’s share of the taxes the Fund paid to other countries. An investor may be able to deduct or receive a tax credit for the investor’s share of these taxes.
Non-U.S. Investors. If an investor is a non-U.S. investor (i.e., an investor other than a U.S. citizen or resident or a U.S. corporation, partnership, estate or trust), the investor should be aware that, generally, subject to applicable tax treaties, distributions from FFR will be characterized as dividends for federal income tax purposes (other than dividends which the Fund properly reports as capital gain dividends) and will be subject to U.S. federal income taxes, including withholding taxes, subject to certain exceptions described below. However, distributions received by a non-U.S. investor from FFR that are properly reported by FFR as capital gain dividends may not be subject to U.S. federal income taxes, including withholding taxes, provided that FFR makes certain elections and certain other conditions are met. Distributions from FFR that are properly reported by FFR as an interest-related dividend attributable to certain interest income received by FFR or as a short-term capital gain dividend attributable to certain net short-term capital gain income received by FFR may not be subject to U.S. federal income taxes, including withholding taxes when received by certain non-U.S. investors, provided that FFR makes certain elections and certain other conditions are met.
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Distributions may be subject to a U.S. withholding tax of 30% in the case of distributions to (i) certain non-U.S. financial institutions that have not entered into an agreement with the U.S. Treasury to collect and disclose certain information and are not resident in a jurisdiction that has entered into such an agreement with the U.S. Treasury and (ii) certain other non-U.S. entities that do not provide certain certifications and information about the entity’s U.S. owners. Disposition of shares by such persons may be subject to such withholding after December 31, 2018, although proposed regulations may eliminate this withholding obligation.
Investments in Certain Non-U.S. Corporations. If FFR holds an equity interest in any Passive Foreign Investment Company (“PFIC”), which are generally certain non-U.S. corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties or capital gains) or that hold at least 50% of their assets in investments producing such passive income, the Fund could be subject to U.S. federal income tax and additional interest charges on gains and certain distributions with respect to those equity interests, even if all the income or gain is timely distributed to its shareholders. FFR will not be able to pass through to its shareholders any credit or deduction for such taxes. The Fund may be able to make an election that could ameliorate these adverse tax consequences. In this case, FFR would recognize as ordinary income any increase in the value of such PFIC shares, and as ordinary loss any decrease in such value to the extent it did not exceed prior increases included in income. Under this election, FFR might be required to recognize in a year income in excess of its distributions from PFICs and its proceeds from dispositions of PFIC stock during that year, and such income would nevertheless be subject to the distribution requirement and would be taken into account for purposes of the 4% excise tax. Dividends paid by PFICs are not treated as qualified dividend income.
Net Asset Value
FFR’s net asset value is determined as of the close of trading (normally 4:00 p.m., Eastern time) on each day the NYSE Arca is open for business. Net asset value is calculated for FFR by taking the market price of FFR’s total assets, including interest or dividends accrued but not yet collected, less all liabilities, and dividing such amount by the total number of shares outstanding. The result, rounded to the nearest cent, is the net asset value per share. All valuations are subject to review by the Board of Trustees of FFR or its delegate.
FFR’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value, in accordance with valuation procedures adopted by the Board of Trustees and in accordance with the 1940 Act. Portfolio securities listed on any exchange other than Nasdaq Stock Market (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”) are valued at the last sale price on the business day as of which such value is being determined. Securities listed on Nasdaq or the AIM are valued at the official closing price on the business day as of which such value is being determined. If there has been no sale on such day, or no official closing price in the case of securities traded on Nasdaq or the AIM, the securities are fair valued at the mean of the most recent bid and ask prices on such day. Portfolio securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Portfolio securities traded in the over-the-counter market, but excluding securities trading on Nasdaq or the AIM, are fair valued at the mean of the most recent bid and asked price, if available, and otherwise at the closing bid price. Short-term investments that mature in less than 60 days when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discount, provided First Trust’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Net asset value may change on days when investors may not sell or redeem Fund shares.
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Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Board of Trustees or its delegate, First Trust’s Pricing Committee, at fair value. The use of fair value pricing by FFR is governed by valuation procedures adopted by the Board of Trustees and in accordance with the provisions of the 1940 Act. These securities generally include, but are not limited to, certain restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of FFR’s net asset value or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used generally they will differ from the current market valuations.
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GENERAL INFORMATION
Share Ownership of PRME and FFR
Based solely on information First Trust obtained from filings available on the SEC’s EDGAR website, the following tables provide information regarding persons who owned beneficially or of record 5% or more of shares of PRME and FFR and, on a pro forma basis, FFR on a post-Reorganization basis. Neither First Trust nor PRME have any knowledge regarding the identities of the ultimate beneficiaries of any of the shares referenced below.
PRME
Name and Address | Number of Shares Beneficially Owned(1) | Percentage of Ownership(1) |
Goldman Sachs & Co. LLC 30 Hudson Street Jersey City, New Jersey 07302 | 20,001 | 20.00% |
Credit Suisse Securities (USA) LLC 7033 Louis Stevens Drive, Global Proxy Services Research Triangle Park, North Carolina 27560 | 18,197 | 18.20% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated 4804 Deer Lake Drive E Jacksonville, Florida 32246 | 10,997 | 11.00% |
LPL Financial Corporation 9785 Towne Centre Drive San Diego, California 92121 | 10,891 | 10.89% |
RBC Capital Markets, LLC 60 S 6th Street, P-09 Minneapolis, Minnesota 55402 | 8,475 | 8.47% |
Citadel Securities LLC 131 South Dearborn Street Chicago, Illinois 60603 | 7,208 | 7.21% |
Pershing LLC One Pershing Plaza Jersey City, New Jersey 07399 | 5,184 | 5.18% |
(1) This information is based solely on the information provided on such shareholder’s filings with the SEC and First Trust. FFR and PRME disclaim any responsibility as to the accuracy of such information.
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FFR
Name and Address | Number of Shares Beneficially Owned(1) | Percentage of Ownership(1) |
Morgan Stanley Smith Barney LLC 1300 Thames St, 6th Floor Baltimore, Maryland 21231 | 177,320 | 16.89% |
Charles Schwab & Co., Inc. 2434 E Lincoln Drive Phoenix, Arizona 85016 | 156,236 | 14.88% |
Raymond James & Associates, Inc. 880 Carillon Parkway St. Petersburg, Florida 33716 | 125,684 | 11.97% |
First Clearing LLC 2801 Market Street H0006-09B St. Louis, Missouri 63103 | 90,017 | 8.57% |
American Enterprise Investment Services Inc. 901 3RD Avenue South Minneapolis, Minnesota 55474 | 80,734 | 7.69% |
JP Morgan Securities LLC/JPMC 500 Stanton Christiana Road, Ops 4, Floor 3 Newark, Delaware 19713 | 58,402 | 5.56% |
(1) This information is based solely on the information provided on such shareholder’s filings with the SEC and First Trust. FFR and PRME disclaim any responsibility as to the accuracy of such information.
As of March 31, 2019, the Trustees and executive officers of PRME as a group beneficially owned 1,150 shares of PRME, which is 1.15% of PRME’s outstanding shares, and the Trustees and executive officers of FFR as a group beneficially less than 1% of FFR’s outstanding shares.
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Pro Forma FFR Post Reorganization
Name and Address | Number of Shares Beneficially Owned(1) | Percentage of Ownership(1) |
Morgan Stanley Smith Barney LLC 1300 Thames St, 6th Floor Baltimore, Maryland 21231 | 177,386 | 16.89% |
Charles Schwab & Co., Inc. 2434 E Lincoln Drive Phoenix, Arizona 85016 | 156,805 | 14.93% |
Raymond James & Associates, Inc. 880 Carillon Parkway St. Petersburg, Florida 33716 | 125,906 | 11.99% |
First Clearing LLC 2801 Market Street H0006-09B St. Louis, Missouri 63103 | 90,483 | 8.62% |
American Enterprise Investment Services Inc. 901 3RD Avenue South Minneapolis, Minnesota 55474 | 80,734 | 7.69% |
JP Morgan Securities LLC/JPMC 500 Stanton Christiana Road, Ops 4, Floor 3 Newark, Delaware 19713 | 58,967 | 5.62% |
(1) This information is based solely on the information provided on such shareholder’s filings with the SEC and First Trust. PRME and FFR disclaim any responsibility as to the accuracy of such information. Such information assumes the completion of the Reorganization and the relative net asset values of FFR common shares and PRME common shares as of April 30, 2019.
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Shareholder Proposals
PRME’s and FFR’s By-Laws do not permit shareholder proposals for action by shareholders at an annual meeting of shareholders other than as required under federal law. PRME’s and FFR’s Board of Trustees, respectively, may permit from time to time in their discretion procedures by which shareholders may, prior to any meeting at which Trustees are to be elected, submit the names of potential candidates for Trustee, to be considered by the Trustees, or any proper committee thereof.
As a general matter, PRME and FFR do not intend to hold regular annual or special meetings of its shareholders.
Shareholder Communications
Shareholders of PRME or FFR who want to communicate with the Board of Trustees or any individual Trustee should write to the attention of PRME’s and FFR’s Secretary, W. Scott Jardine, First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187. The letter should indicate that such shareholder is a PRME or FFR shareholder, as applicable. If the communication is intended for a specific Trustee and so indicates, it will be sent only to that Trustee. If a communication does not indicate a specific Trustee it will be sent to the chair of the Nominating and Governance Committee and the outside counsel to the Independent Trustees for further distribution as deemed appropriate by such persons.
Fiscal Year
The fiscal year end for PRME is October 31. The fiscal year end for FFR is September 30.
Legal Proceedings
There are no material pending legal proceedings against the Funds or the Advisor.
Annual Report Delivery
Annual reports will be sent to shareholders of record of FFR and, if the Reorganization is not consummated, to shareholders of PRME following the applicable Fund’s next fiscal year end. The applicable Fund will furnish, without charge, a copy of its annual report and/or semi-annual report as available upon request. Such written or oral requests should be directed to the applicable Fund at 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187 or by calling (800) 621-1675.
Please note that only one annual report or proxy statement may be delivered to two or more shareholders of a Fund who share an address, unless such Fund has received instructions to the contrary. To request a separate copy of an annual report or proxy statement, or for instructions as to how to request a separate copy of such documents or as to how to request a single copy if multiple copies of such documents are received, shareholders should contact the applicable Fund at the address and phone number set forth above. Pursuant to a request, a separate copy will be delivered promptly.
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Other Information
A list of shareholders of PRME entitled to be present and to vote at the Meeting will be available at the offices of the Fund, 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, for inspection by any shareholder of PRME during regular business hours beginning two days after the date of the Notice of Special Meeting of Shareholders included with this Proxy Statement/Prospectus.
The chair of the Meeting or person presiding thereat, as applicable, may call for an adjournment of the Meeting to permit further solicitation of proxies with respect to the Proposal if he or she determines that adjournment and further solicitation is reasonable and in the best interests of the shareholders. If a quorum is present, the adjournment must be approved by the vote of holders of shares of PRME representing a majority of the voting power of the shares of PRME present and entitled to vote with respect to the matter to be adjourned, and voting on the adjournment.
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OTHER MATTERS TO COME BEFORE THE MEETING
No business other than the matters described above is expected to come before the Meeting, but should any other matter requiring a vote of shareholders properly come before the Meeting, including any question as to an adjournment or postponement of the Meeting, the persons named on the enclosed proxy card will vote thereon according to their best judgment in the interests of PRME.
It Is Important That Proxies Be Returned Promptly. Shareholders Who Do Not Expect To Attend The Meeting Are Therefore Urged To Complete, Sign, Date And Return The Proxy Card As Soon As Possible In The Enclosed Postage-Paid Envelope.
If You Need Any Assistance, Or Have Any Questions Regarding The Proposal Applicable to You Or How To Vote Your Shares, Call AST Fund Solutions LLC at [( ) - ] Weekdays From 9:00 a.m. To 10:00 p.m. Eastern Time.
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EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the “Agreement”) is made as of this day of , 2019 by First Trust Exchange-Traded Fund II, a Massachusetts business trust (“Trust II”), on behalf of its series, First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (the “Acquiring Fund”), First Trust Exchange-Traded Fund IV, a Massachusetts business trust ( “Trust IV”), on behalf of its series, First Trust Heitman Global Prime Real Estate ETF (the “Target Fund”), and First Trust Advisors L.P. (for purposes of Section 9.1 of the Agreement only), the investment adviser to each of the Acquiring Fund and the Target Fund (the “Adviser”). The Acquiring Fund and the Target Fund may each be referred to herein as a “Fund” and may collectively be referred to herein as the “Funds.”
This Agreement is intended to be, and is adopted as, a plan of reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury Regulations promulgated thereunder.
The reorganization of the Target Fund will consist of: (i) the transfer of all the assets of the Target Fund to the Acquiring Fund in exchange solely for shares of beneficial interest, par value $0.01 per share, of the Acquiring Fund (“Acquiring Fund Shares”) and the assumption by the Acquiring Fund of all the liabilities of the Target Fund; and (ii) the pro rata distribution of all the Acquiring Fund Shares to the shareholders of the Target Fund, in complete liquidation and termination of the Target Fund as provided herein, and transactions and actions related thereto, all upon the terms and conditions set forth in this Agreement (the “Reorganization”). The foregoing will be effected pursuant to this Agreement.
WHEREAS, the Acquiring Fund is a series of Trust II, the Target Fund is a series of Trust IV, and Trust II and Trust IV are each an open-end, management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”);
WHEREAS, the Target Fund owns securities that generally are assets of the character in which the Acquiring Fund is permitted to invest; and
WHEREAS, the Acquiring Fund is authorized to issue the Acquiring Fund Shares.
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:
A-1 |
ARTICLE I
TRANSFER OF ASSETS OF THE TARGET FUND IN EXCHANGE FOR ACQUIRING FUND SHARES AND THE ASSUMPTION OF THE TARGET FUND LIABILITIES AND TERMINATION AND LIQUIDATION OF THE TARGET FUND
1.1 THE EXCHANGE. Subject to the terms and conditions contained herein and on the basis of the representations and warranties contained herein, and in accordance with Massachusetts law, the Target Fund agrees to transfer all of its assets, as set forth in Section 1.2, to the Acquiring Fund. In consideration therefor, the Acquiring Fund agrees: (i) to deliver to the Target Fund the number of full and fractional Acquiring Fund Shares, computed in the manner set forth in Section 2.3; and (ii) to assume all the liabilities of the Target Fund, as set forth in Section 1.3. All Acquiring Fund Shares delivered to the Target Fund shall be delivered at net asset value without a sales load, commission, creation fee or other similar fee being imposed. Such transactions shall take place at the closing provided for in Section 3.1 (the “Closing”).
1.2 ASSETS TO BE TRANSFERRED. The Target Fund shall transfer all of its assets to the Acquiring Fund, including, without limitation, all cash, securities, commodities, interests in futures, dividends or interest receivables owned by the Target Fund and any deferred or prepaid expenses shown as an asset on the books of the Target Fund as of the Closing.
The Target Fund will, within a reasonable period of time before the Closing Date, as such term is defined in Section 3.1, furnish the Acquiring Fund with a list of the Target Fund’s portfolio securities and other investments. The Acquiring Fund will, within a reasonable period of time before the Closing Date, furnish the Target Fund with a list of the securities, if any, on the Target Fund’s list referred to above that do not conform to the Acquiring Fund’s investment objective, policies, and restrictions. The Target Fund, if requested by the Acquiring Fund, will dispose of securities on the list provided by the Acquiring Fund before the Closing. In addition, if it is determined that the portfolios of the Target Fund and the Acquiring Fund, when aggregated, would contain investments exceeding certain percentage limitations imposed upon the Acquiring Fund with respect to such investments, the Target Fund, if requested by the Acquiring Fund, will dispose of a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the Closing. Notwithstanding the foregoing, nothing herein will require the Target Fund to dispose of any investments or securities if, in the reasonable judgment of the Board of Trustees of Trust IV (the “Target Fund Board”) or the Adviser, such disposition would adversely affect the status of the Reorganization as a “reorganization” as such term is used in the Code or would otherwise not be in the best interests of the Target Fund.
1.3 LIABILITIES TO BE ASSUMED. The Target Fund will endeavor to discharge all of its known liabilities and obligations to the extent possible before the Closing Date. Notwithstanding the foregoing, any liabilities not so discharged shall be assumed by the Acquiring Fund, which assumed liabilities shall include all of the Target Fund’s liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether or not determinable at the Closing, and whether or not specifically referred to in this Agreement.
1.4 LIQUIDATING DISTRIBUTION. As of the Effective Time, as such term is defined in Section 3.1, the Target Fund will distribute in complete liquidation of the Target Fund the Acquiring Fund Shares received pursuant to Section 1.1 to its shareholders of record, determined as of the time of such distribution (each a “Target Fund Shareholder” and collectively, the “Target Fund Shareholders”), on a pro rata basis. All issued and outstanding shares of the Target Fund will simultaneously be cancelled on the books of the Target Fund and retired. The Acquiring Fund shall not issue certificates representing Acquiring Fund Shares in connection with such transfers.
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1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund’s transfer agent. Acquiring Fund Shares will be issued to the Target Fund, in an amount computed in the manner set forth in Section 2.3, to be distributed to the Target Fund Shareholders.
1.6 TRANSFER TAXES. Any transfer taxes payable upon the issuance of Acquiring Fund Shares due a Target Fund Shareholder pursuant to Section 1.4 that result from such issuance being made to an account in a name other than the registered holder of such Target Fund shares on the books of the Target Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred.
1.7 LIQUIDATION AND TERMINATION. The Target Fund shall completely liquidate and be dissolved, terminated and have its affairs wound up in accordance with Massachusetts state law promptly following the Closing and the making of all distributions pursuant to Section 1.4, but in no event later than 12 months following the Closing Date.
1.8 REPORTING. Any reporting responsibility of the Target Fund, including, without limitation, the responsibility for filing of regulatory reports, tax returns or other documents with the Securities and Exchange Commission (the “Commission”) or other regulatory authority, the exchange on which the Target Fund’s shares are listed or any state securities commission and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Target Fund or its duly appointed agent.
1.9 BOOKS AND RECORDS. The Target Fund shall have arranged for the availability prior to, and the transfer as soon as practicable following, the Closing Date to the Acquiring Fund, or its designated agent, of the Target Fund’s books and records required to be maintained under the 1940 Act, and the rules and regulations thereunder.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Target Fund’s assets and liabilities shall be computed as of the close of regular trading on the NYSE Arca Exchange (“NYSE Arca”) on the business day immediately prior to the Closing Date (such time and date being hereinafter called the “Valuation Time”), using the valuation procedures of the First Trust exchange-traded funds adopted by the Target Fund Board and the Board of Trustees of Trust II (the “Acquiring Fund Board”) (in effect as of the Closing Date) or such other valuation procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of Acquiring Fund Shares shall be the net asset value per share computed as of the Valuation Time, using the valuation procedures set forth in Section 2.1.
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2.3 SHARES TO BE ISSUED. The number of Acquiring Fund Shares to be issued (including fractional shares, if any) in consideration for the net assets as described in Article I, shall be determined by dividing the value of the assets (net of liabilities) of the Target Fund determined in accordance with Section 2.1 by the net asset value of an Acquiring Fund Share determined in accordance with Section 2.2. Shareholders of record of the Target Fund at the Closing will be credited with full and fractional shares of the Acquiring Fund.
2.4 EFFECT OF SUSPENSION IN TRADING. In the event that on the Closing Date, either: (a) the NYSE Arca or another primary exchange on which the portfolio securities of the Acquiring Fund or the Target Fund are purchased or sold shall be closed to trading or trading on such exchange shall be restricted; or (b) trading or the reporting of trading on the NYSE Arca or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Target Fund is impracticable, the Closing Date shall be postponed until at least the first business day when trading is fully resumed and reporting is restored.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING. The Closing shall occur at on , 2019 or such other date as the parties may agree (the “Closing Date”). Unless otherwise provided, all acts taking place at the Closing shall be deemed to take place as of immediately after the Valuation Time on the Closing Date (the “Effective Time”). The Closing shall be held as of the close of business on the Closing Date at the offices of Chapman and Cutler LLP in Chicago, Illinois or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN’S CERTIFICATE. The Target Fund shall cause its custodian to deliver to the Acquiring Fund at the Closing a certificate of an authorized officer stating that: (a) the Target Fund’s portfolio securities, cash, and any other assets shall have been delivered in proper form to the Acquiring Fund’s custodian on behalf of the Acquiring Fund on the Closing Date; and (b) all necessary taxes, including all applicable federal and state stock transfer stamps, if any, shall have been paid, or provision for payment shall have been made, in conjunction with the delivery of portfolio securities by the Target Fund.
3.3 CERTIFICATES OF TRANSFER AGENT.
(a) The Target Fund shall cause its transfer agent to deliver to the Acquiring Fund at the Closing a certificate of an authorized officer stating that such transfer agent’s records contain the names and addresses of all the Target Fund Shareholders, and the number and percentage ownership of outstanding shares owned by each such shareholder as of the Closing.
(b) The Acquiring Fund shall cause its transfer agent to issue and deliver to the Target Fund a confirmation evidencing the Acquiring Fund Shares to be credited at the Closing to Trust IV or provide evidence satisfactory to the Target Fund that such Acquiring Fund Shares have been credited to the Target Fund’s account on the books of the Acquiring Fund.
3.4 DELIVERY OF ADDITIONAL ITEMS. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, share certificates, receipts and other documents, if any, as such other party or its counsel may reasonably request to effect the transactions contemplated by this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE TARGET FUND. Trust IV, on behalf of the Target Fund, represents and warrants as follows:
(a) Trust IV is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts.
(b) The Target Fund is a separate series of Trust IV duly authorized in accordance with the applicable provisions of Trust IV’s Declaration of Trust.
(c) Trust IV is registered as an open-end management investment company under the 1940 Act, and such registration is in full force and effect.
(d) The Target Fund is not, and the execution, delivery, and performance of this Agreement (subject to shareholder approval) will not result in, the violation of any provision of Trust IV’s Declaration of Trust or By-Laws or of any material agreement, indenture, instrument, contract, lease, or other undertaking to which the Target Fund is a party or by which it is bound.
(e) There are no contracts outstanding to which the Target Fund is a party that have not been disclosed in writing to the Acquiring Fund. Except as otherwise disclosed in writing to and accepted by the Acquiring Fund, the Target Fund has no material contracts or other commitments that will be terminated with liability to the Target Fund before the Closing.
(f) No litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or to its knowledge threatened against the Target Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect the Target Fund’s financial condition, the conduct of its business, or the ability of the Target Fund to carry out the transactions contemplated by this Agreement. The Target Fund knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions contemplated herein.
(g) The financial statements of the Target Fund as of October 31, 2018, and for the year then ended have been prepared in accordance with generally accepted accounting principles and have been audited by an independent registered public accounting firm, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Target Fund as of October 31, 2018, and there are no known liabilities, contingent or otherwise, of the Target Fund as of such date that are not disclosed in such statements.
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(h) Since the date of the financial statements referred to in subsection (g) above, there have been no material adverse changes in the Target Fund’s financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business) and there are no known contingent liabilities of the Target Fund arising after such date. Before the Closing Date, the Target Fund will advise the Acquiring Fund of all material liabilities, contingent or otherwise, incurred by it subsequent to October 31, 2018, whether or not incurred in the ordinary course of business. For the purposes of this subsection (h), a decline in the net asset value of the Target Fund shall not constitute a material adverse change.
(i) All federal, state, local and other tax returns and reports of the Target Fund required by law to be filed by it (taking into account permitted extensions for filing) have been timely filed and are complete and correct in all material respects. All federal, state, local and other taxes of the Target Fund required to be paid (whether or not shown on any such return or report) have been paid, or provision shall have been made for the payment thereof and any such unpaid taxes, as of the date of the financial statements referred to above, are properly reflected thereon. To the best of the Target Fund’s knowledge, no tax authority is currently auditing or preparing to audit the Target Fund, and no assessment for taxes, interest, additions to tax or penalties has been asserted against the Target Fund.
(j) All issued and outstanding shares of the Target Fund are, and as of the Closing will be, duly and validly issued and outstanding, fully paid and non-assessable by the Target Fund. All the issued and outstanding shares of the Target Fund will, at the time of the Closing, be held by the persons and in the amounts set forth in the records of the Target Fund’s transfer agent as provided in Section 3.3. The Target Fund has no outstanding options, warrants or other rights to subscribe for or purchase any shares of the Target Fund, and has no outstanding securities convertible into shares of the Target Fund.
(k) At the Closing, the Target Fund will have good and marketable title to the Target Fund’s assets to be transferred to the Acquiring Fund pursuant to Section 1.2, and full right, power, and authority to sell, assign, transfer, and deliver such assets free and clear of any liens, encumbrances and restrictions on transfer, except those liens, encumbrances and restrictions for which the Acquiring Fund has received written notice of prior to the Closing and not objected to, and the Acquiring Fund will acquire good and marketable title thereto, subject to no other restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the “1933 Act”).
(l) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Target Fund, including the determinations of the Target Fund Board required by Rule 17a-8 under the 1940 Act. This Agreement constitutes a valid and binding obligation of the Target Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors’ rights and to general equity principles.
(m) The information to be furnished by the Target Fund for use in no-action letters, applications for orders, registration statements, proxy materials and other documents that may be necessary in connection with the transactions contemplated herein shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations.
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(n) From the effective date of the Registration Statement (as defined in Section 5.7), through the time of the meeting of the Target Fund shareholders and on the Closing Date, any written information furnished by Trust IV with respect to the Target Fund for use in the Registration Statement, Proxy Materials (as defined in Section 5.7) and any supplement or amendment thereto or to the documents included or incorporated by reference therein, or any other materials provided in connection with the Reorganization, does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements, in light of the circumstances under which such statements were made, not misleading.
(o) No consent, approval, authorization, or order of any court, governmental authority, or any stock exchange on which shares of the Target Fund are listed is required for the consummation by the Target Fund of the transactions contemplated herein, except such as have been or will be obtained.
(p) For each taxable year of its operations (including the taxable year ending on the Closing Date), the Target Fund (i) has elected to qualify, and has qualified or will qualify (in the case of the taxable year ending on the Closing Date), as a “regulated investment company” under the Code (a “RIC”); (ii) has been eligible to compute and has computed its federal income tax under Section 852 of the Code, and on or prior to the Closing Date will have declared and paid a distribution with respect to all of its investment company taxable income (determined without regard to the deduction for dividends paid), and its net capital gain (after reduction for any available capital loss carryforward) (as such terms are defined in the Code) that has accrued or will accrue on or prior to the Closing Date; and (iii) has been, and will be (in the case of the taxable year ending on the Closing Date), treated as a separate corporation for federal income tax purposes pursuant to Section 851(g) of the Code.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. Trust II, on behalf of the Acquiring Fund, represents and warrants as follows:
(a) Trust II is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate series of Trust II duly authorized in accordance with the applicable provisions of Trust II’s Declaration of Trust.
(c) Trust II is registered as an open-end management investment company under the 1940 Act, and such registration is in full force and effect.
(d) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in a violation of Trust II’s Declaration of Trust or By-Laws or of any material agreement, indenture, instrument, contract, lease, or other undertaking to which the Acquiring Fund is a party or by which it is bound.
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(e) No litigation, administrative proceeding or investigation of or before any court or governmental body is presently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect the Acquiring Fund’s financial condition, the conduct of its business or the ability of the Acquiring Fund to carry out the transactions contemplated by this Agreement. The Acquiring Fund knows of no facts that might form the basis for the institution of such proceedings and it is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transaction contemplated herein.
(f) (i) The financial statements of the Acquiring Fund as of September 30, 2018 and for the fiscal year then ended have been prepared in accordance with generally accepted accounting principles and have been audited by an independent registered public accounting firm, and such statements (copies of which have been furnished to the Target Fund) fairly reflect the financial condition of the Acquiring Fund as of September 30, 2018, and there are no known liabilities, contingent or otherwise, of the Acquiring Fund as of such date that are not disclosed in such statements.
(ii) The financial statements of the Acquiring Fund as of March 31, 2019, and for the period then ended have been prepared in accordance with generally accepted accounting principles, and such statements (copies of which have been furnished to the Target Fund) fairly reflect the financial condition of the Acquiring Fund as of March 31, 2019, and there are no known contingent liabilities of the Acquiring Fund as of such date that are not disclosed in such statements.
(g) Since the date of the financial statements referred to in subsection (f (i)) above, there have been no material adverse changes in the Acquiring Fund’s financial condition, assets, liabilities or business (other than changes occurring in the ordinary course of business) and there are no known contingent liabilities of the Acquiring Fund arising after such date. Before the Closing Date, the Acquiring Fund will advise the Target Fund of all material liabilities, contingent or otherwise, incurred by it subsequent to March 31, 2019, whether or not incurred in the ordinary course of business. For the purposes of this subsection (g), a decline in the net asset value of the Acquiring Fund shall not constitute a material adverse change.
(h) All federal, state, local and other tax returns and reports of the Acquiring Fund required by law to be filed by it (taking into account permitted extensions for filing) have been timely filed and are complete and correct in all material respects. All federal, state, local and other taxes of the Acquiring Fund required to be paid (whether or not shown on any such return or report) have been paid or provision shall have been made for their payment and any such unpaid taxes, as of the date of the financial statements referred to above, are properly reflected thereon. To the best of the Acquiring Fund’s knowledge, no tax authority is currently auditing or preparing to audit the Acquiring Fund, and no assessment for taxes, interest, additions to tax or penalties has been asserted against the Acquiring Fund.
(i) All issued and outstanding shares of the Acquiring Fund are, and, as of the Closing will be, duly and validly issued and outstanding, fully paid and non-assessable by the Acquiring Fund. The Acquiring Fund has no outstanding options, warrants, or other rights to subscribe for or purchase any shares of the Acquiring Fund, and has no outstanding securities convertible into shares of the Acquiring Fund.
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(j) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquiring Fund, including the determinations of the Acquiring Fund Board required by Rule 17a-8 under the 1940 Act. This Agreement constitutes a valid and binding obligation of the Acquiring Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors’ rights and to general equity principles.
(k) The Acquiring Fund Shares to be issued and delivered to the Target Fund for the account of the Target Fund Shareholders pursuant to the terms of this Agreement will, at the time of the Closing, have been duly authorized. When so issued and delivered, such shares will be duly and validly issued shares of the Acquiring Fund, and will be fully paid and non-assessable (recognizing that under Massachusetts law, Acquiring Fund shareholders, under certain circumstances, could be held personally liable for the obligations of the Acquiring Fund).
(l) The information to be furnished by the Acquiring Fund for use in no-action letters, applications for orders, registration statements, proxy materials, and other documents that may be necessary in connection with the transactions contemplated herein shall be accurate and complete in all material respects and shall comply in all material respects with federal securities laws and other laws and regulations.
(m) From the effective date of the Registration Statement (as defined in Section 5.7), through the time of the meeting of the Target Fund shareholders and on the Closing Date, any written information furnished by Trust II with respect to the Acquiring Fund for use in the Registration Statement, Proxy Materials and any supplement or amendment thereto or to the documents included or incorporated by reference therein, or any other materials provided in connection with the Reorganization, does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements, in light of the circumstances under which such statements were made, not misleading.
(n) For each taxable year of its operations, including the taxable year that includes the Closing Date, the Acquiring Fund (i) has elected to qualify, has qualified or will qualify (in the case of the year that includes the Closing Date) and intends to continue to qualify as a RIC under the Code; (ii) has been eligible to and has computed its federal income tax under Section 852 of the Code, and will do so for the taxable year that includes the Closing Date; and (iii) has been, and will be (in the case of the taxable year that includes the Closing Date), treated as a separate corporation for federal income tax purposes pursuant to Section 851(g) of the Code.
(o) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated herein, except such as have been or will be obtained.
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ARTICLE V
COVENANTS OF THE FUNDS
5.1 OPERATION IN ORDINARY COURSE. Subject to Sections 1.2 and 7.3, each of the Acquiring Fund and the Target Fund will operate its respective business in the ordinary course between the date of this Agreement and the Closing, it being understood that such ordinary course of business will include customary dividends and distributions, any other distribution necessary or desirable to avoid federal income or excise taxes, and shareholder purchases and redemptions.
5.2 APPROVAL OF SHAREHOLDERS. Trust IV will call a special meeting of the Target Fund shareholders to consider and act upon this Agreement (and the transactions contemplated thereby) and to take all other appropriate action necessary to obtain approval of the transactions contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Target Fund covenants that the Acquiring Fund Shares to be issued pursuant to this Agreement are not being acquired for the purpose of making any distribution, other than in connection with the Reorganization and in accordance with the terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Target Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Target Fund’s shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, each Fund will take or cause to be taken all action and do or cause to be done all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including any actions required to be taken after the Closing Date. The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and any state securities laws as it may deem appropriate in order to continue its operations after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in any case within 60 days after the Closing Date, the Target Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund and which shall be certified by Trust IV’s Controller or Treasurer, a statement of the earnings and profits of the Target Fund for federal income tax purposes, as well as any net operating loss carryovers and capital loss carryovers, that will be carried over to the Acquiring Fund pursuant to Section 381 of the Code.
5.7 PREPARATION OF REGISTRATION STATEMENT AND PROXY MATERIALS. Trust II will prepare and file with the Commission a registration statement on Form N-14 relating to the Acquiring Fund Shares to be issued to the Target Fund for distribution to Target Fund Shareholders (the “Registration Statement”). The Registration Statement shall include a proxy statement of the Target Fund and a prospectus of the Acquiring Fund relating to the transactions contemplated by this Agreement. The Registration Statement shall be in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act, as applicable. Each party will provide the other party with the materials and information necessary to prepare the proxy statement and related materials (the “Proxy Materials”), for inclusion therein, in connection with the meeting of the Target Fund’s shareholders to consider the approval of this Agreement and the transactions contemplated herein.
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5.8 TAX STATUS OF REORGANIZATION. The intention of the parties is that the Reorganization will qualify as a reorganization within the meaning of Section 368(a) of the Code. None of the Target Fund, Trust IV, the Acquiring Fund or Trust II shall take any action, or cause any action to be taken (including, without limitation, the filing of any tax return), that is inconsistent with such treatment or results in the failure of the transaction to qualify as a reorganization within the meaning of Section 368(a) of the Code. At or prior to the Closing, the Target Fund, Trust IV, the Acquiring Fund and Trust II will take such action, or cause such action to be taken, as is reasonably necessary to enable counsel to render the tax opinion contemplated in Section 8.7 herein.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET FUND
The obligations of the Target Fund to consummate the transactions provided for herein shall be subject to the fulfillment or waiver of the following conditions:
6.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and as of the Closing, with the same force and effect as if made on and as of the Closing. The Acquiring Fund shall have delivered to the Target Fund a certificate executed in the Acquiring Fund’s name by the Acquiring Fund’s (i) President or Vice President and (ii) Treasurer, in form and substance satisfactory to the Target Fund and dated as of the Closing Date, to such effect and as to such other matters as the Target Fund shall reasonably request.
6.2 The Acquiring Fund shall have performed and complied in all material respects with all terms, conditions, covenants, obligations, agreements and restrictions required by this Agreement to be performed or complied with by the Acquiring Fund prior to or at the Closing.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions provided for herein shall be subject to the fulfillment or waiver of the following conditions:
7.1 All representations and warranties of the Target Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and as of the Closing, with the same force and effect as if made on and as of the Closing. The Target Fund shall have delivered to the Acquiring Fund on the Closing a certificate executed in the Target Fund’s name by the Target Fund’s (i) President or Vice President and (ii) Treasurer, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to such effect and as to such other matters as the Acquiring Fund shall reasonably request.
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7.2 The Target Fund shall have delivered to the Acquiring Fund a statement of the Target Fund’s assets and liabilities, together with a list of the Target Fund’s portfolio securities showing the tax basis of such securities by lot and the holding periods of such securities, as of the Closing, certified by the Controller or Treasurer of Trust IV.
7.3 The Target Fund shall have declared and paid prior to the Valuation Time a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to its shareholders at least all of the Target Fund’s investment company taxable income for all taxable periods ending on or before the Closing Date (computed without regard to any deduction for dividends paid), if any, plus all of its net capital gains realized in all taxable periods ending on or before the Closing Date (after reduction for any available capital loss carry forward and excluding any net capital gain on which the Target Fund paid tax under Section 852(b)(3)(A) of the Code). The Target Fund shall establish an escrow account and set aside assets in the amount of such dividend or dividends in such escrow account to be held solely for the benefit of Target Fund shareholders as of the record date for such dividend. The Target Fund shall not have any rights with respect to the assets held in such escrow account.
7.4 The Target Fund shall have performed and complied in all material respects with all terms, conditions, covenants, obligations, agreements and restrictions required by this Agreement to be performed or complied with by the Target Fund prior to or at the Closing.
7.5 The Target Fund shall have delivered to the Acquiring Fund such records, agreements, certificates, instruments and such other documents as the Acquiring Fund shall reasonably request.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT
The obligations of the Target Fund and the Acquiring Fund to consummate the transactions provided for herein shall also be subject to the fulfillment (or waiver by the affected parties) of the following conditions:
8.1 This Agreement and the transactions contemplated herein, with respect to the Target Fund, shall have been approved by the requisite vote of the holders of the outstanding shares of the Target Fund in accordance with applicable law and the provisions of Trust IV’s Declaration of Trust and By-Laws. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Target Fund may waive the conditions set forth in this Section 8.1.
8.2 On the Closing Date, the Commission shall not have issued an unfavorable report under Section 25(b) of the 1940 Act, or instituted any proceeding seeking to enjoin the consummation of the transactions contemplated by this Agreement under Section 25(c) of the 1940 Act. Furthermore, no action, suit or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with this Agreement or the transactions contemplated herein.
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8.3 All required consents of other parties and all other consents, orders, and permits of federal, state and local regulatory authorities (including those of the Commission and of state securities authorities, including any necessary “no-action” positions and exemptive orders from such federal and state authorities) to permit consummation of the transactions contemplated herein shall have been obtained.
8.4 The Registration Statement shall have become effective under the 1933 Act, and no stop orders suspending the effectiveness thereof shall have been issued. To the best knowledge of the parties to this Agreement, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Target Fund shall have received on the Closing Date an opinion from Chapman and Cutler LLP and/or an opinion from Morgan, Lewis & Bockius LLP, dated as of the Closing Date, substantially to the effect that:
(a) Trust II is a validly existing voluntary association with shares of beneficial interest commonly referred to as a “Massachusetts business trust,” and is existing under the laws of the Commonwealth of Massachusetts.
(b) The execution and delivery of the Agreement by Trust II, on behalf of the Acquiring Fund, did not, and the issuance of Acquiring Fund Shares pursuant to the Agreement will not, violate Trust II’s Declaration of Trust or By-Laws.
(c) To the knowledge of such counsel, and without any independent investigation, (i) Trust II is registered with the Commission as an open-end management investment company under the 1940 Act, and such registration under the 1940 Act is in full force and effect and is not subject to any stop order; and (ii) no regulatory consents, authorizations, orders, approvals or filings are required to be obtained or made by the Acquiring Fund under the federal laws of the United States of America or the laws of the Commonwealth of Massachusetts for the issuance of Acquiring Fund Shares and the performance of its obligations pursuant to the Agreement, except such as may be required under any Massachusetts securities law, rule, or regulation, about which we express no opinion.
Insofar as the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the Commonwealth of Massachusetts, Chapman and Cutler LLP may rely on the opinions of Morgan, Lewis & Bockius LLP.
8.6 The Acquiring Fund shall have received on the Closing Date an opinion from Chapman and Cutler LLP and/or an opinion from Morgan, Lewis & Bockius LLP, dated as of the Closing Date, substantially to the effect that:
(a) Trust IV is a validly existing voluntary association with shares of beneficial interest commonly referred to as a “Massachusetts business trust,” and is existing under the laws of the Commonwealth of Massachusetts.
(b) The execution and delivery of the Agreement by Trust IV, on behalf of the Target Fund, did not, and the exchange of the Target Fund’s assets for Acquiring Fund Shares pursuant to the Agreement will not, violate Trust IV’s Declaration of Trust or By-Laws.
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(c) To the knowledge of such counsel, and without any independent investigation, (i) Trust IV is registered with the Commission as an open-end management investment company under the 1940 Act, and such registration under the 1940 Act is in full force and effect and is not subject to any stop order; and (ii) no regulatory consents, authorizations, orders, approvals or filings are required to be obtained or made by the Target under the federal laws of the United States of America or the laws of the Commonwealth of Massachusetts for the transfer of the Target Fund’s assets and liabilities in exchange for Acquiring Fund Shares and the performance of its obligations pursuant to the Agreement except such as may be required under any Massachusetts securities law, rule, or regulation, about which such counsel expresses no opinion, and except for filings with the Secretary of the Commonwealth of Massachusetts and the Clerk of the City of Boston in connection with the termination of the Target Fund as a series of Trust IV.
Insofar as the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the Commonwealth of Massachusetts, Chapman and Cutler LLP may rely on the opinions of Morgan, Lewis & Bockius LLP.
8.7 The Funds shall have received on the Closing Date an opinion of Chapman and Cutler LLP addressed to the Acquiring Fund and the Target Fund substantially to the effect that for federal income tax purposes:
(a) The transfer of all the Target Fund’s assets to the Acquiring Fund in exchange solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of all the liabilities of the Target Fund immediately followed by the pro rata, by class, distribution to the Target Fund Shareholders of all the Acquiring Fund Shares received by the Target Fund in complete liquidation of the Target Fund and the termination of the Target Fund as soon as practicable thereafter will constitute a “reorganization” within the meaning of Section 368(a) of the Code and the Acquiring Fund and the Target Fund will each be a “party to a reorganization,” within the meaning of Section 368(b) of the Code, with respect to the Reorganization.
(b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of all the assets of the Target Fund solely in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of all the liabilities of the Target Fund.
(c) No gain or loss will be recognized by the Target Fund upon the transfer of all the Target Fund’s assets to the Acquiring Fund solely in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of all the liabilities of the Target Fund or upon the distribution (whether actual or constructive) of such Acquiring Fund Shares to the Target Fund Shareholders solely in exchange for such shareholders’ shares of the Target Fund in complete liquidation of the Target Fund.
(d) No gain or loss will be recognized by the Target Fund Shareholders upon the exchange of their Target Fund shares solely for Acquiring Fund Shares in the Reorganization.
A-14 |
(e) The aggregate basis of the Acquiring Fund Shares received by each Target Fund Shareholder pursuant to the Reorganization will be the same as the aggregate basis of the Target Fund shares exchanged therefor by such shareholder. The holding period of the Acquiring Fund Shares received by each Target Fund Shareholder in the Reorganization will include the period during which the Target Fund shares exchanged therefor were held by such shareholder, provided such Target Fund shares are held as capital assets at the time of the Reorganization.
(f) The basis of the Target Fund’s assets transferred to the Acquiring Fund will be the same as the basis of such assets in the hands of the Target Fund immediately before the effective time of the Reorganization. The holding period of the assets of the Target Fund received by the Acquiring Fund will include the period during which such assets were held by the Target Fund.
No opinion will be expressed as to (1) the effect of the Reorganization on the Target Fund, the Acquiring Fund or any Target Fund Shareholder with respect to any asset (including, without limitation, any stock held in a passive foreign investment company as defined in Section 1297(a) of the Code) as to which any unrealized gain or loss is required to be recognized under federal income tax principles (a) at the end of a taxable year (or on the termination thereof) or (b) upon the transfer of such asset regardless of whether such transfer would otherwise be a non-taxable transaction under the Code, or (2) any other federal tax issues (except those set forth above) and all state, local or foreign tax issues of any kind.
Such opinion shall be based on certain factual representations, reasonable assumptions and such other representations as Chapman and Cutler LLP may request of the Funds, and the Target Fund and the Acquiring Fund will cooperate to make and certify the accuracy of such representations. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Target Fund may waive the conditions set forth in this Section 8.7.
ARTICLE IX
EXPENSES
9.1 The Adviser will pay the expenses incurred by each Fund in connection with the Reorganization (“Reorganization Expenses”). Reorganization Expenses include, without limitation: (a) expenses associated with the preparation and filing of the Registration Statement and other Proxy Materials; (b) postage; (c) printing; (d) accounting fees; (e) legal fees; (f) solicitation costs of the transaction; and (g) other related administrative or operational costs.
9.2 Each Fund represents and warrants to the other Fund that there is no person or entity entitled to receive any broker’s fees or similar fees or commission payments in connection with the transactions provided for herein.
9.3 Notwithstanding the foregoing, Reorganization Expenses will in any event be paid by the party directly incurring such Reorganization Expenses if and to the extent that the payment by another party of such Reorganization Expenses would result in the disqualification of the Target Fund or the Acquiring Fund, as the case may be, as a RIC under the Code.
A-15 |
ARTICLE X
ENTIRE AGREEMENT
10.1 The parties agree that no party has made to the other parties any representation, warranty and/or covenant not set forth herein, and that this Agreement constitutes the entire agreement between and among the parties.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the parties and such termination may be effected by the President or any Vice President of the Target Fund or the Acquiring, respectively, without further action by the Target Fund Board or the Acquiring Fund Board, respectively. In addition, either Fund may, at its option, terminate this Agreement at or before the Closing due to:
(a) a breach by any other party of any representation, warranty, or agreement contained herein to be performed at or before the Closing, if not cured within 30 days of notification to the breaching party and prior to the Closing;
(b) a condition precedent to the obligations of the terminating party that has not been met or waived and it reasonably appears that it will not or cannot be met; or
(c) a determination by the Target Fund Board or the Acquiring Fund Board that the consummation of the transactions contemplated herein is not in the best interests of the Target Fund or Acquiring Fund, respectively.
11.2 In the event of any such termination, in the absence of willful default, there shall be no liability for damages on the part of Trust IV or Trust II.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such manner as may be mutually agreed upon in writing by the officers of Trust IV and officers of Trust II as specifically authorized by the Target Fund Board and the Acquiring Fund Board, respectively; provided, however, that following the meeting of the Target Fund shareholders called by the Target Fund pursuant to Section 5.2 of this Agreement, no such amendment, modification or supplement may have the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to the Target Fund Shareholders under this Agreement to the detriment of such shareholders without their further approval.
A-16 |
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but, except as provided in this section, no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm, or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
13.5 All parties hereto are expressly put on notice of the Declaration of Trust of Trust II and the Declaration of Trust of Trust IV and all amendments thereto, a copy of each of which is on file with the Secretary of the Commonwealth of Massachusetts, and the limitations of shareholder and trustee liability contained therein. This Agreement has been executed and delivered by the trustees or officers of Trust II, or officers of the Acquiring Fund on behalf of the Acquiring Fund, and the trustees or officers of Trust IV, or officers of the Target Fund, on behalf of the Target Fund, in each case acting as trustees or officers and not individually, and it is expressly agreed that the obligations of the Funds hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents, or employees of Trust II or Trust IV individually, or impose any liability on any of them personally, but shall bind only the property of the Acquiring Fund and the Target Fund, as provided in the applicable Declaration of Trust, and persons dealing with a Fund must look solely to the assets of such Fund for the enforcement of any claims.
[SIGNATURE PAGE FOLLOWS]
A-17 |
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first written above.
First Trust Exchange-Traded Fund II, on behalf of First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
By:_______________________________
Name:_____________________________
Title:______________________________
First Trust Exchange-Traded Fund IV, on behalf of First Trust Heitman Global Prime Real Estate ETF
By:______________________________
Name:_____________________________
Title:______________________________
The undersigned is a party to this Agreement for the purposes of Section 9.1 only:
FIRST TRUST ADVISORS L.P.
By:_______________________________
Name:_____________________________
Title:______________________________
A-18 |
SUBJECT TO COMPLETION, DATED MAY 8, 2019
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE REORGANIZATION TRANSACTION INVOLVING
First Trust Heitman Global Prime Real Estate ETF (PRME),
A SERIES OF
FIRST TRUST EXCHANGE-TRADED FUND IV
AND
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (FFR),
A SERIES OF
FIRST TRUST EXCHANGE-TRADED FUND II
(Exact Name of Registrant as Specified in Charter)
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(630) 765-8000
This Statement of Additional Information is not a prospectus but should be read in conjunction with the Proxy Statement/Prospectus dated [__________], 2019 that is being furnished to shareholders of First Trust Heitman Global Prime Real Estate ETF (“PRME”), an exchange-traded fund organized as a separate series of First Trust Exchange-Traded Fund IV, an open-end management investment company (“First Trust ETF IV”), and First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (“FFR” and together with PRME, each a “Fund”), an exchange-traded fund organized as a separate series of First Trust Exchange-Traded Fund II, an open-end management investment company (“First Trust ETF II”), in connection with a Special Meeting of Shareholders (the “Meeting”) called by the Board of Trustees of PRME (the “Board of Trustees”) to be held at the offices of the Funds, 120 E. Liberty Drive, Suite 400, Wheaton, Illinois 60187, on [ ], 2019, at [ ] a.m. Central time. At the Meeting, shareholders of PRME will be asked to approve an Agreement and Plan of Reorganization between PRME and FFR, pursuant to which PRME would reorganize into FFR, and shareholders of PRME would become shareholders of FFR (the “Reorganization”). Copies of the Proxy Statement/Prospectus may be obtained at no charge by writing PRME and FFR at the address shown above or by calling (800) 621-1675.
Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Proxy Statement/Prospectus.
This Statement of Additional Information incorporates by reference the following documents, which have each been filed with the Securities and Exchange Commission and will be sent to any shareholder requesting this Statement of Additional Information:
(i) Statement of Additional Information, dated February 1, 2019, for FFR;
(ii) Statement of Additional Information, dated March 1, 2019, for PRME
The information in this Statement of Additional Information is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer of sale is not permitted.
(iii) the financial statements of FFR for its most recent fiscal year ending September 30, 2018;
(iv) the financial statements of PRME for its most recent fiscal year ending October 31, 2018.
Please note that since the net asset value of PRME does not exceed ten percent of FFR’s net asset value, pro forma financial statements need not be prepared for this transaction under Item 14(2) of Form N-14.
The date of this Statement of Additional Information is [__________], 2019.
TABLE OF CONTENTS
FUND HISTORY | 1 |
DESCRIPTION OF INVESTMENT OBJECTIVES, POLICIES AND RISKS OF THE FUNDS | 1 |
MANAGEMENT OF THE FUNDS | 2 |
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES | 2 |
INVESTMENT ADVISORY AND OTHER SERVICES | 3 |
PORTFOLIO MANAGERS | 4 |
BROKERAGE ALLOCATION AND OTHER PRACTICES | 4 |
TAXATION OF THE FUNDS | 4 |
CAPITAL STOCK; SHARE PURCHASE, REDEMPTION AND PRICING; DISTRIBUTOR | 5 |
FINANCIAL STATEMENTS | 5 |
i |
FUND HISTORY
This Statement of Additional Information relates to an Agreement of Plan and Reorganization between First Trust Heitman Global Prime Real Estate ETF (“PRME”), a series of First Trust Exchange-Traded Fund IV (“First Trust ETF IV”), and First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (“FFR” and together with PRME, the “Funds” and each individually a “Fund”), a series of First Trust Exchange-Traded Fund II (“First Trust ETF II”), pursuant to which PRME would reorganize into FFR, and shareholders of PRME would become shareholders of FFR (the “Reorganization”). FFR is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). For further information concerning FFR in general see the headings “General Description of the Trust and the Funds” in FFR’s Statement of Additional Information as it relates to FFR. For further information concerning PRME in general see the headings “General Description of the Trust and the Fund” in PRME’s Statement of Additional Information as it related to PRME.
DESCRIPTION OF INVESTMENT OBJECTIVES,
POLICIES AND RISKS OF THE FUNDS
FFR Investment Objectives and Risks
For a discussion of FFR’s investment objectives and techniques and related investment policies, see the heading “Investment Objective and Policies” and “Investment Strategies” in FFR’s Statement of Additional Information as it relates to FFR. For a discussion of the risks associated with an investment in FFR, see the heading “Investment Risks” in FFR’s Statement of Additional Information as it relates to FFR. For a discussion of the fundamental and nonfundamental investment policies of FFR adopted by the Trust’s Board of Trustees, see heading “Investment Objective and Policies” in FFR’s Statement of Additional Information as it relates to FFR.
PRME Investment Objectives and Risks
For a discussion of PRME’s investment objectives and techniques and related investment policies, see the heading “Investment Objective and Policies” and “Investment Strategies” in PRME’s Statement of Additional Information as it relates to PRME. For a discussion of the risks associated with an investment in PRME, see the heading “Investment Risks” in PRME’s Statement of Additional Information as it relates to PRME. For a discussion of the fundamental and nonfundamental investment policies of PRME adopted by the Trust’s Board of Trustees, see heading “Investment Objective and Policies” in PRME’s Statement of Additional Information as it relates to PRME.
1 |
MANAGEMENT OF THE FUNDS
Management of FFR
For a disclosure of the names and a brief occupational biography of each of the FFR’s trustees and officers, identifying those who are interested persons of FFR, see the heading “Management of the Funds” in FFR’s Statement of Additional Information.
As of March 31, 2019, the officers and trustees, in the aggregate, owned less than 1% of the shares of FFR.
Management of PRME
For a disclosure of the names and a brief occupational biography of each of PRME’s trustees and officers, identifying those who are interested persons of PRME, see the heading “Management of the Fund” in PRME’s Statement of Additional Information.
As of March 31, 2019, the officers and trustees, in the aggregate, owned 1.15% of the shares of PRME.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
FFR
For a discussion of the persons who control FFR, persons who own beneficially 5% or more of FFR’s outstanding equity securities and percentages of the Fund’s equity securities owned by all officers, trustees, and members of any advisory board of the First Trust ETF II as a group, see the heading “Management of the Funds” and “Exhibit A – Principal Holders Table” in FFR’s Statement of Additional Information.
To the knowledge of the Board of Trustees, as of April 30, 2019, no single shareholder or “group” (as that term is used in Section 13(d) of the Securities Exchange Act of 1934 (the “1934 Act”)) beneficially owned more than 5% of FFR’s outstanding Shares, except as described in the following table. A control person is one who owns, either directly or indirectly, more than 25% of the voting securities of the Fund or acknowledges the existence of control. A party that controls the Fund may be able to significantly affect the outcome of any item presented to shareholders for approval. Information as to beneficial ownership of Shares, including percentage of outstanding Shares beneficially owned, is based on securities position listing reports as of the Record Date and reports filed with the Securities and Exchange Commission (“SEC”) by shareholders. The Fund does not have any knowledge of the identity of the ultimate beneficiaries of the Shares listed below.
2 |
FFR
Beneficial Ownership of Shares
Name and Address of Beneficial Owner | Shares Beneficially Owned | % of Outstanding Shares Beneficially Owned |
Morgan Stanley Smith Barney LLC 1300 Thames St, 6th Floor Baltimore, Maryland 21231 | 177,320 | 16.89% |
Charles Schwab & Co., Inc. 2434 E Lincoln Drive Phoenix, Arizona 85016 | 156,236 | 14.88% |
Raymond James & Associates, Inc. 880 Carillon Parkway St. Petersburg, Florida 33716 | 125,684 | 11.97% |
First Clearing LLC 2801 Market Street H0006-09B St. Louis, Missouri 63103 | 90,017 | 8.57% |
American Enterprise Investment Services Inc. 901 3RD Avenue South Minneapolis, Minnesota 55474 | 80,734 | 7.69% |
JP Morgan Securities LLC/JPMC 500 Stanton Christiana Road, Ops 4, Floor 3 Newark, Delaware 19713 | 58,402 | 5.56% |
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisory and Other Services of FFR
For a discussion of FFR’s advisory and management-related services agreements and plans of distribution, see the headings “Management of the Funds” and “Custodian, Administrator, Fund Accountant, Transfer Agent, Distributor, Index Providers and Exchanges,” in FFR’s Statement of Additional Information.
3 |
Investment Advisory and Other Services of PRME
For a discussion of PRME’s advisory and management-related services agreements and plans of distribution, see the headings “Management of the Fund” and “Custodian, Administrator, Fund Accountant, Transfer Agent, Distributor, Index Providers and Exchanges,” in PRME’s Statement of Additional Information.
PORTFOLIO MANAGERS
Portfolio Managers of FFR
For a discussion of portfolio manager’s management activities, compensation and ownership of securities in FFR, see heading “Management of the Funds” in FFR’s Statement of Additional Information as it relates to FFR.
Portfolio Managers of PRME
For a discussion of portfolio manager’s management activities, compensation and ownership of securities in PRME, see heading “Management of the Fund” in PRME’s Statement of Additional Information as it related to PRME.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Brokerage Allocation and Other Practices of FFR
For a discussion of FFR’s brokerage policy, see the heading “Brokerage Allocations” in FFR’s Statement of Additional Information.
Brokerage Allocation and Other Practices of PRME
For a discussion of PRME’s brokerage policy, see the heading “Brokerage Allocations” in PRME’s Statement of Additional Information.
TAXATION OF THE FUNDS
Taxation of FFR
For a discussion of any tax information relating to ownership of FFR’s shares, see the heading “Federal Tax Matters” in FFR’s Statement of Additional Information.
4 |
Taxation of PRME
For a discussion of any tax information relating to ownership of PRME’s shares, see the heading “Federal Tax Matters” in PRME’s Statement of Additional Information.
CAPITAL STOCK; SHARE PURCHASE, REDEMPTION AND
PRICING; SERVICE DISTRIBUTOR
FFR
For a discussion of FFR’s authorized securities and the characteristics of the Fund’s shares of beneficial interest, see the headings “General Description of the Trust and the Funds” and “Additional Information” in FFR’s Statement of Additional Information.
For a description of the purchase and redemption procedures for FFR’s shares and a discussion of FFR’s valuation and pricing procedures, see the headings “Creation and Redemption of Creation Unit Aggregations” and “Determination of Net Asset Value” in FFR’s Statement of Additional Information.
For a discussion of FFR’s distributor, see the heading “Custodian, Administrator, Fund Accountant, Distributor, Transfer Agent, Index Providers and Exchanges” in FFR’s Statement of Additional Information.
PRME
For a discussion of PRME’s authorized securities and the characteristics of the Fund’s shares of beneficial interest, see the headings “General Description of the Trust and the Fund” and “Additional Information” in PRME’s Statement of Additional Information.
For a description of the purchase and redemption procedures for PRME’s shares and a discussion of PRME’s valuation and pricing procedures, see the headings “Creation and Redemption of Creation Unit Aggregations” and “Determination of Net Asset Value” in PRME’s Statement of Additional Information.
For a discussion of PRME’s distributor, see the heading “Custodian, Administrator, Fund Accountant, Distributor, Transfer Agent, Index Providers and Exchanges” in PRME’s Statement of Additional Information.
FINANCIAL STATEMENTS
Financial Highlights of FFR
For the Audited financial statements for FFR for its most recent fiscal year, and the report thereon by Deloitte & Touche LLP, independent auditor for FFR, see the heading “Financial Highlights” in FFR’s Statement of Additional Information.
5 |
Financial Highlights of PRME
For the Audited financial statements for PRME for its most recent fiscal year, and the report thereon by Deloitte & Touche LLP, independent auditor for PRME, see the heading “Financial Highlights” in PRME’s Statement of Additional Information.
6 |
FIRST TRUST EXCHANGE-TRADED FUND II
(the “Trust”)
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
(the “Fund”)
SUPPLEMENT TO THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 2019
DATED MARCH 13, 2019
The Board of Trustees of First Trust Exchange-Traded Fund II (the “Trust”) has approved a transaction to combine the First Trust Heitman Global Prime Real Estate ETF (“PRME”) with the Fund. Pursuant to this transaction, PRME shareholders will become shareholders of the Fund.
In order for the transaction to occur, the shareholders of PRME must approve the transaction. If approved, shares of PRME would be exchanged, on a tax-free basis for federal income tax purposes, for shares of the Fund with an equal aggregate net asset value, and PRME shareholders will become shareholders of the Fund.
PLEASE KEEP THIS SUPPLEMENT WITH YOUR FUND’S PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE
First Trust Exchange-Traded Fund II |
FUND NAME | TICKER SYMBOL | EXCHANGE |
First Trust BICK Index Fund | BICK | Nasdaq |
First Trust Cloud Computing ETF | SKYY | Nasdaq |
First Trust Dow Jones Global Select Dividend Index Fund | FGD | NYSE Arca |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | FFR | NYSE Arca |
First Trust Global Engineering and Construction ETF | FLM | NYSE Arca |
First Trust Global Wind Energy ETF | FAN | NYSE Arca |
First Trust Indxx Global Agriculture ETF | FTAG | Nasdaq |
First Trust Indxx Global Natural Resources Income ETF | FTRI | Nasdaq |
First Trust International Equity Opportunities ETF (formerly First Trust International IPO ETF) | FPXI | Nasdaq |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | GRID | Nasdaq |
First Trust Nasdaq Cybersecurity ETF | CIBR | Nasdaq |
First Trust NASDAQ Global Auto Index Fund | CARZ | Nasdaq |
First Trust Nasdaq Smartphone Index Fund | FONE | Nasdaq |
First Trust STOXX® European Select Dividend Index Fund | FDD | NYSE Arca |
Summary Information | |
3 | |
10 | |
16 | |
23 | |
30 | |
37 | |
44 | |
51 | |
59 | |
66 | |
73 | |
79 | |
86 | |
92 | |
99 | |
101 | |
101 | |
114 | |
114 | |
117 | |
118 | |
118 | |
120 | |
121 | |
121 | |
122 | |
122 | |
126 | |
130 | |
136 | |
150 |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.64% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.00% |
Total Annual Fund Operating Expenses | 0.64% |
1 Year | 3 Years | 5 Years | 10 Years |
$65 | $205 | $357 | $798 |
Calendar Year Total Returns as of 12/31
BICK | First Trust BICK Index Fund | Override |
2011 | -27.71% | |
2012 | 13.01% | |
2013 | -0.18% | |
2014 | -2.54% | |
2015 | -18.47% | |
2016 | 16.65% | |
2017 | 37.98% | |
2018 | -15.90% |
Best Quarter | Worst Quarter | ||
14.74% | March 31, 2012 | -29.98% | September 30, 2011 |
1 Year | 5 Years | Since Inception | Inception Date | |
Return Before Taxes | -15.90% | 1.47% | -0.57% | 4/12/2010 |
Return After Taxes on Distributions | -16.53% | 0.81% | -1.22% | |
Return After Taxes on Distributions and Sale of Shares | -9.40% | 0.82% | -0.70% | |
ISE BICKTM Index (reflects no deduction for fees, expenses or taxes) | -15.05% | 2.26% | 0.25% | |
MSCI All Country World Index (reflects no deduction for fees, expenses or taxes) | -9.42% | 4.26% | 6.52% | |
MSCI Emerging Markets Index (reflects no deduction for fees, expenses or taxes) | -14.58% | 1.65% | 1.59% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.60% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.00% |
Total Annual Fund Operating Expenses | 0.60% |
1 Year | 3 Years | 5 Years | 10 Years |
$61 | $192 | $335 | $750 |
Calendar Year Total Returns as of 12/31
SKYY | First Trust Cloud Computing ETF | Override |
2012 | 15.53% | |
2013 | 33.35% | |
2014 | 7.42% | |
2015 | 5.89% | |
2016 | 15.42% | |
2017 | 33.39% | |
2018 | 6.23% |
Best Quarter | Worst Quarter | ||
24.11% | March 31, 2012 | -14.35% | December 31, 2018 |
1 Year | 5 Years | Since Inception | Inception Date | |
Return Before Taxes | 6.23% | 13.22% | 12.70% | 7/5/2011 |
Return After Taxes on Distributions | 5.84% | 13.01% | 12.56% | |
Return After Taxes on Distributions and Sale of Shares | 3.70% | 10.50% | 10.36% | |
ISE Cloud Computing IndexTM (reflects no deduction for fees, expenses or taxes) | 7.47% | 13.86% | 13.36% | |
S&P 500® Index (reflects no deduction for fees, expenses or taxes) | -4.38% | 8.49% | 11.06% | |
S&P Composite 1500® Information Technology Index (reflects no deduction for fees, expenses or taxes) | -0.75% | 14.46% | 14.83% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.40% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.18% |
Total Annual Fund Operating Expenses | 0.58% |
Fee Waiver and Expense Reimbursement(1) | 0.00% |
Net Annual Fund Operating Expenses | 0.58% |
(1) | First Trust Advisors L.P., the Fund’s investment advisor, has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed 0.60% of its average daily net assets per year (the “Expense Cap”) at least through January 31, 2020. Expenses reimbursed and fees waived under such agreement are subject to recovery by the Fund’s investment advisor for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment will be made by the Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees waived by the Fund’s investment advisor. The agreement may be terminated by the Trust, on behalf of the Fund, at any time and by the Fund’s investment advisor only after January 31, 2020 upon 60 days’ written notice. |
1 Year | 3 Years | 5 Years | 10 Years |
$59 | $186 | $324 | $726 |
Calendar Year Total Returns as of 12/31
FGD | First Trust Dow Jones Global Select Dividend Index Fund | Override |
2009 | 64.28% | |
2010 | 12.27% | |
2011 | -2.17% | |
2012 | 15.42% | |
2013 | 17.90% | |
2014 | -0.72% | |
2015 | -10.10% | |
2016 | 11.80% | |
2017 | 17.62% | |
2018 | -12.40% |
Best Quarter | Worst Quarter | ||
38.58% | June 30, 2009 | -29.23% | December 31, 2008 |
1 Year | 5 Years | 10 Years | Since Inception | Inception Date | |
Return Before Taxes | -12.40% | 0.55% | 9.70% | 2.05% | 11/21/2007 |
Return After Taxes on Distributions | -14.28% | -1.43% | 7.68% | 0.13% | |
Return After Taxes on Distributions and Sale of Shares | -7.27% | -0.43% | 7.00% | 0.72% | |
Dow Jones Global Select Dividend IndexSM (reflects no deduction for fees, expenses or taxes) | -12.71% | 0.60% | 9.94% | 2.17% | |
Dow Jones World Developed Markets IndexSM (reflects no deduction for fees, expenses or taxes) | -9.20% | 4.77% | 10.18% | 4.41% | |
MSCI World Index (reflects no deduction for fees, expenses or taxes) | -8.71% | 4.56% | 9.67% | 3.95% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.40% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.45% |
Total Annual Fund Operating Expenses | 0.85% |
Fee Waiver and Expense Reimbursement(1) | 0.25% |
Net Annual Fund Operating Expenses | 0.60% |
(1) | First Trust Advisors L.P., the Fund’s investment advisor, has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed 0.60% of its average daily net assets per year (the “Expense Cap”) at least through January 31, 2020. Expenses reimbursed and fees waived under such agreement are subject to recovery by the Fund’s investment advisor for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment will be made by the Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees waived by the Fund’s investment advisor. The agreement may be terminated by the Trust, on behalf of the Fund, at any time and by the Fund’s investment advisor only after January 31, 2020 upon 60 days’ written notice. |
1 Year | 3 Years | 5 Years | 10 Years |
$61 | $246 | $447 | $1,026 |
Calendar Year Total Returns as of 12/31
FFR | First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | Override |
2009 | 35.00% | |
2010 | 19.59% | |
2011 | -6.49% | |
2012 | 28.28% | |
2013 | 2.97% | |
2014 | 14.73% | |
2015 | -0.65% | |
2016 | 4.37% | |
2017 | 10.57% | |
2018 | -5.11% |
Best Quarter | Worst Quarter | ||
35.30% | June 30, 2009 | -32.77% | December 31, 2008 |
1 Year | 5 Years | 10 Years | Since Inception | Inception Date | |
Return Before Taxes | -5.11% | 4.53% | 9.55% | 1.95% | 8/27/2007 |
Return After Taxes on Distributions | -6.35% | 3.17% | 8.06% | 0.60% | |
Return After Taxes on Distributions and Sale of Shares | -3.00% | 2.89% | 7.09% | 0.87% | |
FTSE EPRA/NAREIT Developed Index (reflects no deduction for fees, expenses or taxes) | -4.74% | 5.26% | 10.53% | 2.78% | |
S&P Global REIT Index (reflects no deduction for fees, expenses or taxes) | -5.90% | 5.28% | 10.05% | 2.45% | |
MSCI World REIT Index (reflects no deduction for fees, expenses or taxes) | -5.04% | 6.27% | 9.82% | 2.24% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.40% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.48% |
Total Annual Fund Operating Expenses | 0.88% |
Fee Waiver and Expense Reimbursement(1) | 0.18% |
Net Annual Fund Operating Expenses | 0.70% |
(1) | First Trust Advisors L.P., the Fund’s investment advisor, has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed 0.70% of its average daily net assets per year (the “Expense Cap”) at least through January 31, 2020. Expenses reimbursed and fees waived under such agreement are subject to recovery by the Fund’s investment advisor for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment will be made by the Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees waived by the Fund’s investment advisor. The agreement may be terminated by the Trust, on behalf of the Fund, at any time and by the Fund’s investment advisor only after January 31, 2020 upon 60 days’ written notice. |
1 Year | 3 Years | 5 Years | 10 Years |
$72 | $263 | $470 | $1,068 |
Calendar Year Total Returns as of 12/31
FLM | First Trust Global Engineering and Construction ETF | Override |
2009 | 25.44% | |
2010 | 18.23% | |
2011 | -17.44% | |
2012 | 19.21% | |
2013 | 23.10% | |
2014 | -10.66% | |
2015 | -0.59% | |
2016 | 13.79% | |
2017 | 22.43% | |
2018 | -21.06% |
Best Quarter | Worst Quarter | ||
28.36% | June 30, 2009 | -24.67% | September 30, 2011 |
1 Year | 5 Years | 10 Years | Since Inception | Inception Date | |
Return Before Taxes | -21.06% | -0.47% | 5.79% | 5.97% | 10/13/2008 |
Return After Taxes on Distributions | -21.53% | -1.13% | 5.11% | 5.31% | |
Return After Taxes on Distributions and Sale of Shares | -12.42% | -0.63% | 4.33% | 4.49% | |
ISE Global Engineering and Construction Index (reflects no deduction for fees, expenses or taxes) | -20.74% | 0.55% | 7.03% | 7.50% | |
Russell 3000® Index (reflects no deduction for fees, expenses or taxes) | -5.24% | 7.91% | 13.18% | 11.76% | |
MSCI World Industrials Index (reflects no deduction for fees, expenses or taxes) | -14.54% | 3.51% | 10.08% | 9.18% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.40% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.28% |
Total Annual Fund Operating Expenses | 0.68% |
Fee Waiver and Expense Reimbursement(1) | 0.08% |
Net Annual Fund Operating Expenses | 0.60% |
(1) | First Trust Advisors L.P., the Fund’s investment advisor, has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed 0.60% of its average daily net assets per year (the “Expense Cap”) at least through January 31, 2020. Expenses reimbursed and fees waived under such agreement are subject to recovery by the Fund’s investment advisor for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment will be made by the Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees waived by the Fund’s investment advisor. The agreement may be terminated by the Trust, on behalf of the Fund, at any time and by the Fund’s investment advisor only after January 31, 2020 upon 60 days’ written notice. |
1 Year | 3 Years | 5 Years | 10 Years |
$61 | $210 | $371 | $840 |
Calendar Year Total Returns as of 12/31
FAN | First Trust Global Wind Energy ETF | Override |
2009 | 26.01% | |
2010 | -31.42% | |
2011 | -21.59% | |
2012 | -12.18% | |
2013 | 64.51% | |
2014 | -6.61% | |
2015 | 13.26% | |
2016 | 9.28% | |
2017 | 16.27% | |
2018 | -11.11% |
Best Quarter | Worst Quarter | ||
41.69% | June 30, 2009 | -25.75% | June 30, 2010 |
1 Year | 5 Years | 10 Years | Since Inception | Inception Date | |
Return Before Taxes | -11.11% | 3.62% | 1.58% | -6.75% | 6/16/2008 |
Return After Taxes on Distributions | -11.99% | 2.24% | 0.68% | -7.54% | |
Return After Taxes on Distributions and Sale of Shares | -6.54% | 2.16% | 0.81% | -4.97% | |
ISE Clean Edge Global Wind Energy Index (reflects no deduction for fees, expenses or taxes) | -11.01% | 4.31% | 2.54% | -6.03% | |
Russell 3000® Index (reflects no deduction for fees, expenses or taxes) | -5.24% | 7.91% | 13.18% | 8.16% | |
MSCI World Index (reflects no deduction for fees, expenses or taxes) | -8.71% | 4.56% | 9.67% | 4.53% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.70% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.00% |
Total Annual Fund Operating Expenses | 0.70% |
1 Year | 3 Years | 5 Years | 10 Years |
$72 | $224 | $390 | $871 |
Calendar Year Total Returns as of 12/31
FTAG | First Trust Indxx Global Agriculture ETF | Override |
2011 | -47.63% | |
2012 | -17.50% | |
2013 | -13.89% | |
2014 | -19.47% | |
2015 | -56.15% | |
2016 | 7.97% | |
2017 | 24.70% | |
2018 | -18.99% |
Best Quarter | Worst Quarter | ||
17.11% | September 30, 2013 | -34.63% | September 30, 2015 |
1 Year | 5 Years | Since Inception | Inception Date | |
Return Before Taxes | -18.99% | -17.37% | -18.37% | 3/11/2010 |
Return After Taxes on Distributions | -19.63% | -17.91% | -18.80% | |
Return After Taxes on Distributions and Sale of Shares | -11.21% | -11.99% | -10.80% | |
Indxx Global Agriculture Index(1) (reflects no deduction for fees, expenses or taxes) | -18.32% | N/A | N/A | |
MSCI All Country World Index (reflects no deduction for fees, expenses or taxes) | -9.42% | 4.26% | 6.96% | |
MSCI All Country World Materials Index (reflects no deduction for fees, expenses or taxes) | -16.01% | 0.86% | 1.05% |
(1) | On December 18, 2015, the Fund's underlying index changed from the ISE Global PlatinumTM Index to the Indxx Global Agriculture Index. Because the Fund's new underlying index had an inception date of June 1, 2015, performance information is not included above. |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.70% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.00% |
Total Annual Fund Operating Expenses | 0.70% |
1 Year | 3 Years | 5 Years | 10 Years |
$72 | $224 | $390 | $871 |
Calendar Year Total Returns as of 12/31
FTRI | First Trust Indxx Global Natural Resources Income ETF | Override |
2011 | -29.36% | |
2012 | 5.61% | |
2013 | -24.92% | |
2014 | -16.36% | |
2015 | -45.76% | |
2016 | 21.96% | |
2017 | 12.53% | |
2018 | -9.03% |
Best Quarter | Worst Quarter | ||
15.51% | December 31, 2011 | -37.68% | September 30, 2011 |
1 Year | 5 Years | Since Inception | Inception Date | |
Return Before Taxes | -9.03% | -10.75% | -8.39% | 3/11/2010 |
Return After Taxes on Distributions | -10.43% | -11.86% | -9.39% | |
Return After Taxes on Distributions and Sale of Shares | -5.27% | -8.09% | -5.97% | |
Indxx Global Natural Resources Income Index(1) (reflects no deduction for fees, expenses or taxes) | -8.26% | N/A | N/A | |
MSCI All Country World Materials Index (reflects no deduction for fees, expenses or taxes) | -16.01% | 0.86% | 1.05% | |
MSCI All Country World Index (reflects no deduction for fees, expenses or taxes) | -9.42% | 4.26% | 6.96% |
(1) | On December 18, 2015, the Fund's underlying index changed from the ISE Global CopperTM Index to the Indxx Global Natural Resources Income Index. Because the Fund's new underlying index had an inception date of June 1, 2015, performance information is not included above. |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.70% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.00% |
Total Annual Fund Operating Expenses | 0.70% |
1 Year | 3 Years | 5 Years | 10 Years |
$72 | $224 | $390 | $871 |
Calendar Year Total Returns as of 12/31
FPXI | First Trust International Equity Opportunities ETF | Override |
2015 | -4.91% | |
2016 | -3.36% | |
2017 | 39.34% | |
2018 | -12.30% |
Best Quarter | Worst Quarter | ||
12.09% | March 31, 2017 | -15.33% | September 30, 2015 |
1 Year | Since Inception | Inception Date | |
Return Before Taxes | -12.30% | 1.88% | 11/4/2014 |
Return After Taxes on Distributions | -12.85% | 1.29% | |
Return After Taxes on Distributions and Sale of Shares | -7.25% | 1.17% | |
IPOX International Index (reflects no deduction for fees, expenses or taxes) | -11.75% | 2.61% | |
MSCI World ex USA Index (reflects no deduction for fees, expenses or taxes) | -14.09% | 1.17% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.40% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.34% |
Total Annual Fund Operating Expenses | 0.74% |
Fee Waiver and Expense Reimbursement(1) | 0.04% |
Net Annual Fund Operating Expenses | 0.70% |
(1) | First Trust Advisors L.P., the Fund’s investment advisor, has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed 0.70% of its average daily net assets per year (the “Expense Cap”) at least through January 31, 2020. Expenses reimbursed and fees waived under such agreement are subject to recovery by the Fund’s investment advisor for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment will be made by the Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees waived by the Fund’s investment advisor. The agreement may be terminated by the Trust, on behalf of the Fund, at any time and by the Fund’s investment advisor only after January 31, 2020 upon 60 days’ written notice. |
1 Year | 3 Years | 5 Years | 10 Years |
$72 | $233 | $408 | $915 |
Calendar Year Total Returns as of 12/31
GRID | First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund | Override |
2010 | -0.20% | |
2011 | -20.90% | |
2012 | 19.69% | |
2013 | 24.41% | |
2014 | -0.73% | |
2015 | -6.88% | |
2016 | 24.78% | |
2017 | 28.19% | |
2018 | -22.29% |
Best Quarter | Worst Quarter | ||
13.59% | March 31, 2012 | -26.52% | September 30, 2011 |
1 Year | 5 Years | Since Inception | Inception Date | |
Return Before Taxes | -22.29% | 2.82% | 4.07% | 11/16/2009 |
Return After Taxes on Distributions | -22.61% | 2.29% | 3.62% | |
Return After Taxes on Distributions and Sale of Shares | -13.15% | 1.94% | 2.99% | |
NASDAQ OMX® Clean Edge® Smart Grid Infrastructure IndexSM (reflects no deduction for fees, expenses or taxes) | -21.94% | 3.47% | 4.85% | |
Russell 3000® Index (reflects no deduction for fees, expenses or taxes) | -5.24% | 7.91% | 11.60% | |
S&P Composite 1500® Industrials Index (reflects no deduction for fees, expenses or taxes) | -13.38% | 5.91% | 11.77% | |
MSCI World Industrials Index (reflects no deduction for fees, expenses or taxes) | -14.54% | 3.51% | 8.16% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.60% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.00% |
Total Annual Fund Operating Expenses | 0.60% |
1 Year | 3 Years | 5 Years | 10 Years |
$61 | $192 | $335 | $750 |
Calendar Year Total Returns as of 12/31
CIBR | First Trust Nasdaq Cybersecurity ETF | Override |
2016 | 10.87% | |
2017 | 18.33% | |
2018 | 1.92% |
Best Quarter | Worst Quarter | ||
14.97% | September 30, 2016 | -17.59% | December 31, 2018 |
1 Year | Since Inception | Inception Date | |
Return Before Taxes | 1.92% | 5.19% | 7/6/2015 |
Return After Taxes on Distributions | 1.82% | 4.96% | |
Return After Taxes on Distributions and Sale of Shares | 1.14% | 3.89% | |
Nasdaq CTA Cybersecurity IndexSM (reflects no deduction for fees, expenses or taxes) | 2.48% | 5.89% | |
S&P 500® Index (reflects no deduction for fees, expenses or taxes) | -4.38% | 7.87% | |
S&P Composite 1500® Information Technology Index (reflects no deduction for fees, expenses or taxes) | -0.75% | 14.96% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.70% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.00% |
Total Annual Fund Operating Expenses | 0.70% |
1 Year | 3 Years | 5 Years | 10 Years |
$72 | $224 | $390 | $871 |
Calendar Year Total Returns as of 12/31
CARZ | First Trust NASDAQ Global Auto Index Fund | Override |
2012 | 28.38% | |
2013 | 36.92% | |
2014 | -3.91% | |
2015 | -0.83% | |
2016 | -2.58% | |
2017 | 24.65% | |
2018 | -23.37% |
Best Quarter | Worst Quarter | ||
21.73% | March 31, 2012 | -14.57% | September 30, 2015 |
1 Year | 5 Years | Since Inception | Inception Date | |
Return Before Taxes | -23.37% | -2.37% | 2.35% | 5/9/2011 |
Return After Taxes on Distributions | -24.15% | -3.25% | 1.64% | |
Return After Taxes on Distributions and Sale of Shares | -13.78% | -2.13% | 1.52% | |
NASDAQ OMX Global Auto IndexSM (reflects no deduction for fees, expenses or taxes) | -22.93% | -1.62% | 3.27% | |
MSCI World Index (reflects no deduction for fees, expenses or taxes) | -8.71% | 4.56% | 6.55% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.70% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.00% |
Total Annual Fund Operating Expenses | 0.70% |
1 Year | 3 Years | 5 Years | 10 Years |
$72 | $224 | $390 | $871 |
Calendar Year Total Returns as of 12/31
FONE | First Trust Nasdaq Smartphone Index Fund | Override |
2012 | 7.44% | |
2013 | 33.64% | |
2014 | 14.57% | |
2015 | -2.98% | |
2016 | 14.71% | |
2017 | 29.10% | |
2018 | -16.81% |
Best Quarter | Worst Quarter | ||
15.83% | March 31, 2012 | -17.69% | June 30, 2012 |
1 Year | 5 Years | Since Inception | Inception Date | |
Return Before Taxes | -16.81% | 6.49% | 5.89% | 2/17/2011 |
Return After Taxes on Distributions | -17.19% | 5.92% | 5.37% | |
Return After Taxes on Distributions and Sale of Shares | -9.92% | 4.82% | 4.41% | |
Nasdaq CTA Smartphone IndexSM (reflects no deduction for fees, expenses or taxes) | -16.23% | 7.39% | 6.81% | |
MSCI World Index (reflects no deduction for fees, expenses or taxes) | -8.71% | 4.56% | 6.39% | |
MSCI All Country World Information Technology Index (reflects no deduction for fees, expenses or taxes) | -5.81% | 12.24% | 11.35% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.40% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.17% |
Total Annual Fund Operating Expenses | 0.57% |
Fee Waiver and Expense Reimbursement(1) | 0.00% |
Net Annual Fund Operating Expenses | 0.57% |
(1) | First Trust Advisors L.P., the Fund’s investment advisor, has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed 0.60% of its average daily net assets per year (the “Expense Cap”) at least through January 31, 2020. Expenses reimbursed and fees waived under such agreement are subject to recovery by the Fund’s investment advisor for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment will be made by the Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees waived by the Fund’s investment advisor. The agreement may be terminated by the Trust, on behalf of the Fund, at any time and by the Fund’s investment advisor only after January 31, 2020 upon 60 days’ written notice. |
1 Year | 3 Years | 5 Years | 10 Years |
$58 | $183 | $319 | $714 |
Calendar Year Total Returns as of 12/31
FDD | First Trust STOXX European Select Dividend Index Fund | Override |
2009 | 37.08% | |
2010 | 0.90% | |
2011 | -10.22% | |
2012 | 10.08% | |
2013 | 17.14% | |
2014 | -0.10% | |
2015 | -3.22% | |
2016 | 2.58% | |
2017 | 19.04% | |
2018 | -8.83% |
Best Quarter | Worst Quarter | ||
27.30% | June 30, 2009 | -30.31% | December 31, 2008 |
1 Year | 5 Years | 10 Years | Since Inception | Inception Date | |
Return Before Taxes | -8.83% | 1.48% | 5.59% | -3.49% | 8/27/2007 |
Return After Taxes on Distributions | -10.49% | -0.26% | 3.81% | -5.16% | |
Return After Taxes on Distributions and Sale of Shares | -5.14% | 0.37% | 3.64% | -3.16% | |
STOXX® Europe Select Dividend 30 Index (reflects no deduction for fees, expenses or taxes) | -8.93% | 1.74% | 6.09% | -3.08% | |
STOXX® Europe 600 Index (reflects no deduction for fees, expenses or taxes) | -15.05% | -0.44% | 6.46% | 0.49% | |
MSCI Europe Index (reflects no deduction for fees, expenses or taxes) | -14.86% | -0.61% | 6.15% | 0.26% |
• | Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director of First Trust |
• | Jon C. Erickson, Senior Vice President of First Trust |
• | David G. McGarel, Chief Investment Officer, Chief Operating Officer and Managing Director of First Trust |
• | Roger F. Testin, Senior Vice President of First Trust |
• | Stan Ueland, Senior Vice President of First Trust |
• | Chris A. Peterson, Senior Vice President of First Trust |
• | Mr. Lindquist is Chairman of the Investment Committee and presides over Investment Committee meetings. Mr. Lindquist is responsible for overseeing the implementation of each Fund’s investment strategy. Mr. Lindquist was a Senior Vice President of First Trust and FTP from September 2005 to July 2012 and is now a Managing Director of First Trust and FTP. |
• | Mr. Erickson joined First Trust in 1994 and is a Senior Vice President of First Trust and FTP. As the head of First Trust’s Equity Research Group, Mr. Erickson is responsible for determining the securities to be purchased and sold by funds that do not utilize quantitative investment strategies. |
• | Mr. McGarel is the Chief Investment Officer, Chief Operating Officer and a Managing Director of First Trust and FTP. As First Trust’s Chief Investment Officer, Mr. McGarel consults with the other members of the Investment Committee on market conditions and First Trust’s general investment philosophy. Mr. McGarel was a Senior Vice President of First Trust and FTP from January 2004 to July 2012. |
• | Mr. Testin is a Senior Vice President of First Trust and FTP. Mr. Testin is the head of First Trust’s Portfolio Management Group. Mr. Testin has been a Senior Vice President of First Trust and FTP since November 2003. |
• | Mr. Ueland joined First Trust as a Vice President in August 2005 and has been a Senior Vice President of First Trust and FTP since September 2012. At First Trust, he plays an important role in executing the investment strategies of each portfolio of exchange-traded funds advised by First Trust. |
• | Mr. Peterson is a Senior Vice President and head of First Trust’s strategy research group. He joined First Trust in January of 2000. Mr. Peterson is responsible for developing and implementing quantitative equity investment strategies. Mr. Peterson received his B.S. in Finance from Bradley University in 1997 and his M.B.A. from the University of Chicago Booth School of Business in 2005. He has over 20 years of financial services industry experience and is a recipient of the Chartered Financial Analyst designation. |
Fund | % of Daily Net Assets |
First Trust BICK Index Fund | 0.64% |
First Trust Cloud Computing ETF | 0.60% |
First Trust Indxx Global Agriculture ETF | 0.70% |
First Trust Indxx Global Natural Resources Income ETF | 0.70% |
First Trust International Equity Opportunities ETF | 0.70% |
First Trust Nasdaq Cybersecurity ETF | 0.60% |
First Trust NASDAQ Global Auto Index Fund | 0.70% |
First Trust Nasdaq Smartphone Index Fund | 0.70% |
Fund | Expense Cap |
First Trust Dow Jones Global Select Dividend Index Fund | 0.60% |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | 0.60% |
First Trust Global Engineering and Construction ETF | 0.70% |
First Trust Global Wind Energy ETF | 0.60% |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | 0.70% |
First Trust STOXX® European Select Dividend Index Fund | 0.60% |
Fund | Annual Management Fee (% of average daily net assets) | Annual Expense Cap (% of average daily net assets) | Expense Cap Termination Date | Management Fee Paid for the Year Ended 9/30/2018 (% of average daily net assets) |
First Trust BICK Index Fund | 0.64% | N/A | N/A | 0.64% |
First Trust Cloud Computing ETF | 0.60% | N/A | N/A | 0.60% |
First Trust Dow Jones Global Select Dividend Index Fund | 0.40% | 0.60% | January 31, 2020 | 0.40% |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | 0.40% | 0.60% | January 31, 2020 | 0.25% |
First Trust Global Engineering and Construction ETF | 0.40% | 0.70% | January 31, 2020 | 0.22% |
First Trust Global Wind Energy ETF | 0.40% | 0.60% | January 31, 2020 | 0.32% |
First Trust Indxx Global Agriculture ETF | 0.70% | N/A | N/A | 0.70% |
First Trust Indxx Global Natural Resources Income ETF | 0.70% | N/A | N/A | 0.70% |
First Trust International Equity Opportunities ETF | 0.70% | N/A | N/A | 0.70% |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | 0.40% | 0.70% | January 31, 2020 | 0.36% |
First Trust Nasdaq Cybersecurity ETF | 0.60% | N/A | N/A | 0.60% |
First Trust NASDAQ Global Auto Index Fund | 0.70% | N/A | N/A | 0.70% |
First Trust Nasdaq Smartphone Index Fund | 0.70% | N/A | N/A | 0.70% |
First Trust STOXX® European Select Dividend Index Fund | 0.40% | 0.60% | January 31, 2020 | 0.40% |
First Trust Cloud Computing ETF
First Trust Global Engineering and Construction ETF
First Trust Global Wind Energy ETF
First Trust Nasdaq Cybersecurity ETF
First Trust NASDAQ Global Auto Index Fund
First Trust Nasdaq Smartphone Index Fund
First Trust Indxx Global Natural Resources Income ETF
• | sponsor, endorse, sell or promote the Fund. |
• | recommend that any person invest in the Fund or any other securities. |
• | have any responsibility or liability for or make any decisions about the timing, amount or pricing of Fund. |
• | have any responsibility or liability for the administration, management or marketing of the Fund. |
• | consider the needs of the Fund or the owners of the Fund in determining, composing or calculating the STOXX Index or have any obligation to do so. |
• | STOXX Licensors do not give any warranty, express or implied, and exclude any liability about: |
○ | the results to be obtained by the Fund, the owners of the Fund or any other person in connection with the use of the STOXX Index and the data included in the STOXX Index; |
○ | the accuracy, timeliness, and completeness of the STOXX Index and its data; |
○ | the merchantability and the fitness for a particular purpose or use of the STOXX Index and its data; |
○ | the performance of the Fund generally. |
• | STOXX Licensors give no warranty and exclude any liability, for any errors, omissions or interruptions in the STOXX Index or its data; |
• | Under no circumstances will STOXX Licensors be liable (whether in negligence or otherwise) for any lost profits or indirect, punitive, special or consequential damages or losses, arising as a result of such errors, omissions or interruptions in the STOXX Index or its data or generally in relation to the Fund, even in circumstances where STOXX Licensors are aware that such loss or damage may occur. |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 94 | 16 | 2 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 105 | 31 | 3 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 155 | 5 | 0 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 85 | 4 | 2 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 143 | 6 | 0 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 97 | 3 | 1 | 1 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 35 | 1 | 0 | 1 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 206 | 7 | 1 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 89 | 13 | 0 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 141 | 8 | 0 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 73 | 2 | 0 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 154 | 21 | 1 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 151 | 5 | 0 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 89 | 6 | 0 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 87 | 32 | 3 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 68 | 58 | 3 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 130 | 27 | 1 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 76 | 16 | 1 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 134 | 23 | 0 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 74 | 20 | 0 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 191 | 4 | 0 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 54 | 2 | 0 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 119 | 13 | 1 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 113 | 5 | 0 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 66 | 6 | 0 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 153 | 24 | 2 | 0 |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 115 | 4 | 1 | 0 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 126 | 4 | 0 | 1 |
Average Annual | Cumulative | |||||
1 Year | 5 Years | Inception (4/12/2010) | 5 Years | Inception (4/12/2010) | ||
Fund Performance | ||||||
Net Asset Value | -6.82% | 3.76% | 0.10% | 20.25% | 0.83% | |
Market Price | -7.33% | 3.95% | 0.12% | 21.38% | 0.98% | |
Index Performance | ||||||
ISE BICKTM Index | -5.62% | 4.66% | 0.98% | 25.59% | 8.64% | |
MSCI All Country World Index | 9.77% | 8.67% | 8.45% | 51.52% | 98.78% | |
MSCI Emerging Markets Index | -0.81% | 3.61% | 2.57% | 19.42% | 24.00% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||
1 Year | 5 Years | Inception (7/5/2011) | 5 Years | Inception (7/5/2011) | ||
Fund Performance | ||||||
Net Asset Value | 35.80% | 18.54% | 15.62% | 134.08% | 185.90% | |
Market Price | 35.94% | 18.55% | 15.63% | 134.20% | 186.05% | |
Index Performance | ||||||
ISE Cloud Computing IndexTM | 36.71% | 19.10% | 16.21% | 139.65% | 196.63% | |
S&P 500® Index | 17.91% | 13.95% | 13.73% | 92.10% | 153.75% | |
S&P Composite 1500® Information Technology Index | 30.40% | 21.80% | 18.46% | 168.05% | 240.89% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||||
1 Year | 5 Years | 10 Years | Inception (11/21/2007) | 5 Years | 10 Years | Inception (11/21/2007) | ||
Fund Performance | ||||||||
Net Asset Value | 2.26% | 4.25% | 7.24% | 3.24% | 23.14% | 101.08% | 41.32% | |
Market Price | 1.71% | 4.14% | 7.37% | 3.20% | 22.51% | 103.54% | 40.81% | |
Index Performance | ||||||||
Dow Jones Global Select Dividend IndexSM | 2.33% | 4.37% | 7.52% | 3.39% | 23.84% | 106.51% | 43.54% | |
Dow Jones World Developed Markets IndexSM | 11.19% | 9.54% | 9.11% | 5.93% | 57.71% | 139.19% | 86.98% | |
MSCI World Index | 11.24% | 9.28% | 8.56% | 5.44% | 55.87% | 127.32% | 77.66% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||||
1 Year | 5 Years | 10 Years | Inception (8/27/2007) | 5 Years | 10 Years | Inception (8/27/2007) | ||
Fund Performance | ||||||||
Net Asset Value | 3.99% | 5.58% | 5.88% | 2.52% | 31.17% | 77.06% | 31.78% | |
Market Price | 3.58% | 5.52% | 5.98% | 2.49% | 30.81% | 78.74% | 31.41% | |
Index Performance | ||||||||
FTSE EPRA/NAREIT Developed Index | 4.62% | 6.34% | 6.88% | 3.37% | 35.99% | 94.57% | 44.37% | |
S&P Global REIT Index | 2.85% | 6.33% | 5.86% | 3.06% | 35.94% | 76.78% | 39.74% | |
MSCI World REIT Index | 3.18% | 6.93% | 5.48% | 2.72% | 39.81% | 70.47% | 34.68% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||
1 Year | 5 Years | Inception (10/13/2008) | 5 Years | Inception (10/13/2008) | ||
Fund Performance | ||||||
Net Asset Value | 1.67% | 5.09% | 8.31% | 28.15% | 121.54% | |
Market Price | 1.22% | 5.03% | 8.28% | 27.79% | 120.85% | |
Index Performance | ||||||
ISE Global Engineering and ConstructionTM Index | 2.29% | 6.20% | 9.91% | 35.09% | 156.42% | |
Russell 3000® Index | 17.58% | 13.46% | 13.82% | 88.02% | 263.20% | |
MSCI World Industrials Index | 7.37% | 9.16% | 11.39% | 55.01% | 193.01% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||||
1 Year | 5 Years | 10 Years | Inception (6/16/2008) | 5 Years | 10 Years | Inception (6/16/2008) | ||
Fund Performance | ||||||||
Net Asset Value | -2.92% | 6.92% | -2.06% | -6.20% | 39.73% | -18.78% | -48.26% | |
Market Price | -3.90% | 6.76% | -2.11% | -6.24% | 38.69% | -19.22% | -48.49% | |
Index Performance | ||||||||
ISE Clean Edge Global Wind EnergyTM Index | -2.41% | 7.73% | -1.16% | -5.45% | 45.13% | -11.00% | -43.80% | |
Russell 3000® Index | 17.58% | 13.46% | 12.01% | 10.00% | 88.02% | 210.82% | 166.78% | |
MSCI World Index | 11.24% | 9.28% | 8.56% | 6.11% | 55.87% | 127.32% | 84.16% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||
1 Year | 5 Years | Inception (3/11/2010) | 5 Years | Inception (3/11/2010) | ||
Fund Performance | ||||||
Net Asset Value | -1.46% | -15.03% | -17.42% | -55.72% | -80.56% | |
Market Price | -1.55% | -15.08% | -17.44% | -55.83% | -80.61% | |
Index Performance | ||||||
Indxx Global Agriculture Index(1) | -0.40% | N/A | N/A | N/A | N/A | |
MSCI All Country World Index | 9.77% | 8.67% | 8.89% | 51.52% | 107.32% | |
MSCI All Country World Materials Index | 4.62% | 4.60% | 2.79% | 25.24% | 26.56% |
(1) | On December 18, 2015, the Fund's underlying index changed from the ISE Global PlatinumTM Index to the Indxx Global Agriculture Index. Because the Fund's new underlying index had an inception date of June 1, 2015, performance information is not included above. |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||
1 Year | 5 Years | Inception (3/11/2010) | 5 Years | Inception (3/11/2010) | ||
Fund Performance | ||||||
Net Asset Value | 11.12% | -8.00% | -7.09% | -34.10% | -46.71% | |
Market Price | 10.86% | -7.97% | -7.11% | -33.99% | -46.78% | |
Index Performance | ||||||
Indxx Global Natural Resources Income Index(1) | 12.36% | N/A | N/A | N/A | N/A | |
MSCI All Country World Materials Index | 4.62% | 4.60% | 2.79% | 25.24% | 26.56% | |
MSCI All Country World Index | 9.77% | 8.67% | 8.89% | 51.52% | 107.32% |
(1) | On December 18, 2015, the Fund's underlying index changed from the ISE Global CopperTM Index to the Indxx Global Natural Resources Income Index. Because the Fund's new underlying index had an inception date of June 1, 2015, performance information is not included above. |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||
1 Year | Inception (11/4/2014) | Inception (11/4/2014) | ||
Fund Performance | ||||
Net Asset Value | 3.35% | 5.56% | 23.51% | |
Market Price | 2.87% | 5.57% | 23.58% | |
Index Performance | ||||
IPOX International Index | 4.17% | 6.34% | 27.12% | |
MSCI World ex USA Index | 2.67% | 4.86% | 20.35% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||
1 Year | 5 Years | Inception (11/16/2009) | 5 Years | Inception (11/16/2009) | ||
Fund Performance | ||||||
Net Asset Value | -1.66% | 8.41% | 6.50% | 49.75% | 74.87% | |
Market Price | -1.10% | 8.68% | 6.59% | 51.58% | 76.19% | |
Index Performance | ||||||
NASDAQ OMX® Clean Edge® Smart Grid Infrastructure IndexSM | -1.06% | 9.16% | 7.33% | 54.97% | 87.27% | |
Russell 3000® Index | 17.58% | 13.46% | 13.92% | 88.02% | 217.69% | |
S&P Composite 1500® Industrials Index | 11.98% | 12.89% | 14.62% | 83.31% | 235.57% | |
MSCI World Industrials Index | 7.37% | 9.16% | 10.60% | 55.01% | 144.45% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||
1 Year | Inception (7/6/2015) | Inception (7/6/2015) | ||
Fund Performance | ||||
Net Asset Value | 30.49% | 12.11% | 44.74% | |
Market Price | 30.93% | 12.19% | 45.10% | |
Index Performance | ||||
Nasdaq CTA Cybersecurity IndexSM | 31.32% | 12.90% | 48.09% | |
S&P 500® Index | 17.91% | 13.49% | 50.59% | |
S&P Composite 1500 Information Technology Index | 30.40% | 23.25% | 96.70% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||
1 Year | 5 Years | Inception (5/9/2011) | 5 Years | Inception (5/9/2011) | ||
Fund Performance | ||||||
Net Asset Value | -7.57% | 0.71% | 4.33% | 3.60% | 36.80% | |
Market Price | -7.70% | 0.61% | 4.34% | 3.11% | 36.92% | |
Index Performance | ||||||
NASDAQ OMX Global Automobile IndexSM | -6.76% | 1.54% | 5.31% | 7.94% | 46.57% | |
MSCI World Index | 11.24% | 9.28% | 8.88% | 55.87% | 87.55% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||
1 Year | 5 Years | Inception (2/17/2011) | 5 Years | Inception (2/17/2011) | ||
Fund Performance | ||||||
Net Asset Value | 0.20% | 10.49% | 8.08% | 64.67% | 80.74% | |
Market Price | -0.30% | 10.44% | 8.01% | 64.31% | 79.79% | |
Index Performance | ||||||
Nasdaq CTA Smartphone IndexSM | 1.22% | 11.51% | 9.08% | 72.38% | 93.82% | |
MSCI World Index | 11.24% | 9.28% | 8.64% | 55.87% | 87.99% | |
MSCI All Country World Information Technology Index | 22.84% | 19.05% | 14.53% | 139.14% | 181.11% |
Total Returns as of September 30, 2018
Average Annual | Cumulative | |||||||
1 Year | 5 Years | 10 Years | Inception (8/27/2007) | 5 Years | 10 Years | Inception (8/27/2007) | ||
Fund Performance | ||||||||
Net Asset Value | 0.74% | 4.49% | 2.73% | -2.82% | 24.58% | 30.92% | -27.18% | |
Market Price | 0.38% | 4.34% | 2.62% | -2.84% | 23.65% | 29.45% | -27.38% | |
Index Performance | ||||||||
STOXX® Europe Select Dividend 30 Index | 1.08% | 4.82% | 3.29% | -2.37% | 26.56% | 38.28% | -23.40% | |
STOXX® Europe 600 Index | -0.29% | 3.95% | 5.17% | 1.76% | 21.40% | 65.56% | 21.40% | |
MSCI Europe Index | -0.30% | 3.70% | 4.85% | 1.51% | 19.90% | 60.65% | 18.03% |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $28.77 | $22.94 | $18.76 | $25.12 | $23.65 |
Income from investment operations: | |||||
Net investment income (loss) | 0.40 | 0.33 | 0.28 | 0.32 | 0.35 |
Net realized and unrealized gain (loss) | (2.34) | 5.85 | 4.19 | (6.34) | 1.53 |
Total from investment operations | (1.94) | 6.18 | 4.47 | (6.02) | 1.88 |
Distributions paid to shareholders from: | |||||
Net investment income | (0.35) | (0.35) | (0.29) | (0.34) | (0.41) |
Net asset value, end of period | $26.48 | $28.77 | $22.94 | $18.76 | $25.12 |
Total Return (a) | (6.82)% | 27.14% | 23.99% | (24.15)% | 7.92% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $190,648 | $202,863 | $8,029 | $7,503 | $17,581 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.64% | 0.64% | 0.64% | 0.64% | 0.64% |
Ratio of net expenses to average net assets | 0.64% | 0.64% | 0.64% | 0.64% | 0.64% |
Ratio of net investment income (loss) to average net assets | 1.33% | 2.15% | 1.37% | 1.17% | 1.35% |
Portfolio turnover rate (b) | 65% | 86% | 59% | 70% | 126% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $41.88 | $34.17 | $28.08 | $27.34 | $24.60 |
Income from investment operations: | |||||
Net investment income (loss) | 0.14 | 0.13 | 0.15 | 0.09 | 0.02 |
Net realized and unrealized gain (loss) | 14.84 | 7.72 | 6.09 | 0.74 | 2.74 |
Total from investment operations | 14.98 | 7.85 | 6.24 | 0.83 | 2.76 |
Distributions paid to shareholders from: | |||||
Net investment income | (0.15) | (0.14) | (0.15) | (0.09) | (0.02) |
Net asset value, end of period | $56.71 | $41.88 | $34.17 | $28.08 | $27.34 |
Total Return (a) | 35.80% | 23.00% | 22.30% | 3.04% | 11.20% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $2,067,140 | $1,088,930 | $587,642 | $470,291 | $341,751 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.60% | 0.60% | 0.60% | 0.60% | 0.60% |
Ratio of net expenses to average net assets | 0.60% | 0.60% | 0.60% | 0.60% | 0.60% |
Ratio of net investment income (loss) to average net assets | 0.28% | 0.34% | 0.49% | 0.31% | 0.10% |
Portfolio turnover rate (b) | 7% | 14% | 23% | 25% | 12% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $25.73 | $23.49 | $21.62 | $26.64 | $25.62 |
Income from investment operations: | |||||
Net investment income (loss) | 1.15 | 1.03 | 1.07 | 1.21 | 1.21 |
Net realized and unrealized gain (loss) | (0.58) | 2.23 | 1.82 | (4.97) | 1.02 |
Total from investment operations | 0.57 | 3.26 | 2.89 | (3.76) | 2.23 |
Distributions paid to shareholders from: | |||||
Net investment income | (1.14) | (1.02) | (1.02) | (1.26) | (1.21) |
Net asset value, end of period | $25.16 | $25.73 | $23.49 | $21.62 | $26.64 |
Total Return (a) | 2.26% | 14.14% | 13.68% | (14.51)% | 8.56% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $484,280 | $470,887 | $344,068 | $407,445 | $562,192 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.58% | 0.58% | 0.58% | 0.60% | 0.60% |
Ratio of net expenses to average net assets | 0.58% | 0.58% | 0.58% | 0.60% | 0.60% |
Ratio of net investment income (loss) to average net assets | 4.48% | 4.43% | 4.63% | 4.71% | 4.56% |
Portfolio turnover rate (b) | 31% | 35% | 43% | 34% | 33% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $44.96 | $46.18 | $41.00 | $41.09 | $39.87 |
Income from investment operations: | |||||
Net investment income (loss) | 1.48 | 0.89 | 0.90 | 1.15 | 1.05 |
Net realized and unrealized gain (loss) | 0.31 | (0.65) | 5.20 | 0.11 | 1.27 |
Total from investment operations | 1.79 | 0.24 | 6.10 | 1.26 | 2.32 |
Distributions paid to shareholders from: | |||||
Net investment income | (1.68) | (1.46) | (0.92) | (1.35) | (1.10) |
Net asset value, end of period | $45.07 | $44.96 | $46.18 | $41.00 | $41.09 |
Total Return (a) | 3.99% | 0.67% | 14.95% | 2.97% | 5.86% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $45,074 | $51,700 | $71,576 | $98,394 | $108,887 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.85% | 0.70% | 0.72% | 0.71% | 0.71% |
Ratio of net expenses to average net assets | 0.60% | 0.60% | 0.60% | 0.60% | 0.60% |
Ratio of net investment income (loss) to average net assets | 3.48% | 2.40% | 2.53% | 2.76% | 2.45% |
Portfolio turnover rate (b) | 9% | 6% | 6% | 10% | 12% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $56.89 | $48.63 | $44.17 | $48.12 | $47.92 |
Income from investment operations: | |||||
Net investment income (loss) | 0.79 | 0.62 | 0.96 | 0.60 | 0.62 |
Net realized and unrealized gain (loss) | 0.16 | 8.27 | 4.46 | (4.02) | 0.42 |
Total from investment operations | 0.95 | 8.89 | 5.42 | (3.42) | 1.04 |
Distributions paid to shareholders from: | |||||
Net investment income | (1.06) | (0.63) | (0.96) | (0.53) | (0.84) |
Net asset value, end of period | $56.78 | $56.89 | $48.63 | $44.17 | $48.12 |
Total Return (a) | 1.67% | 18.39% | 12.40% | (7.19)% | 2.06% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $14,194 | $17,066 | $14,588 | $15,460 | $16,841 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.88% | 0.92% | 1.03% | 0.99% | 0.87% |
Ratio of net expenses to average net assets | 0.70% | 0.70% | 0.70% | 0.70% | 0.70% |
Ratio of net investment income (loss) to average net assets | 1.45% | 1.20% | 2.01% | 1.21% | 1.30% |
Portfolio turnover rate (b) | 16% | 20% | 28% | 46% | 41% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $13.13 | $13.30 | $10.38 | $11.57 | $10.43 |
Income from investment operations: | |||||
Net investment income (loss) | 0.28 | 0.41 | 0.20 | 0.31 | 0.14 |
Net realized and unrealized gain (loss) | (0.66) | 0.32 | 2.93 | (1.15) | 1.14 |
Total from investment operations | (0.38) | 0.73 | 3.13 | (0.84) | 1.28 |
Distributions paid to shareholders from: | |||||
Net investment income | (0.25) | (0.90) | (0.21) | (0.35) | (0.14) |
Net asset value, end of period | $12.50 | $13.13 | $13.30 | $10.38 | $11.57 |
Total Return (a) | (2.92)% | 6.21% | 30.42% | (7.37)% | 12.17% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $79,362 | $100,467 | $87,096 | $39,959 | $86,745 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.68% | 0.71% | 0.74% | 0.75% | 0.70% |
Ratio of net expenses to average net assets | 0.60% | 0.60% | 0.60% | 0.60% | 0.60% |
Ratio of net investment income (loss) to average net assets | 2.21% | 2.88% | 1.80% | 2.75% | 1.23% |
Portfolio turnover rate (b) | 22% | 78% | 26% | 25% | 24% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015(f) | 2014(f) | |
Net asset value, beginning of period | $26.96 | $21.55 | $26.90 | $56.20 | $64.35 |
Income from investment operations: | |||||
Net investment income (loss) | 0.44 | 0.39 | 0.20 | 0.60 | 0.45 |
Net realized and unrealized gain (loss) | (0.83) | 5.41 | (5.46) | (28.95) | (7.15) |
Total from investment operations | (0.39) | 5.80 | (5.26) | (28.35) | (6.70) |
Distributions paid to shareholders from: | |||||
Net investment income | (0.36) | (0.39) | (0.09) | (0.95) | (1.45) |
Net asset value, end of period | $26.21 | $26.96 | $21.55 | $26.90 | $56.20 |
Total Return (a) | (1.46)% | 27.09% | (18.92)% | (51.20)% | (10.64)% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $4,979 | $7,816 | $4,093 | $5,380 | $10,677 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.70% | 0.70% | 0.72%(e) | 0.70% | 0.72%(b) |
Ratio of net expenses to average net assets | 0.70% | 0.70% | 0.72%(e) | 0.70% | 0.72%(b) |
Ratio of net investment income (loss) to average net assets | 1.56% | 1.80% | 1.74% | 1.17% | 0.46% |
Portfolio turnover rate (c) | 30% | 38% | 137%(d) | 40% | 43% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(b) | Includes excise tax. If this excise tax expense was not included, the expense ratio would have been 0.70%. |
(c) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
(d) | The variation in the portfolio turnover rate is due to the change in the Fund's underlying index effective on the close of business December 18, 2015, which resulted in a complete rebalance of the Fund's portfolio. |
(e) | Includes foreign capital gains tax. If this tax expense was not included, the expense ratio would have been 0.70%. |
(f) | All per share amounts and net asset values have been adjusted to reflect the impact of the 1-for-5 reverse share split on May 2, 2016. The net asset values reported on September 30, 2015 and 2014 prior to the reverse share split restatement were $5.38 and $11.24, respectively. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $11.88 | $10.66 | $10.99 | $21.19 | $22.16 |
Income from investment operations: | |||||
Net investment income (loss) | 0.48 | 0.41 | 0.33 | 0.23 | 0.41 |
Net realized and unrealized gain (loss) | 0.83 | 1.22 | (0.32) | (10.23) | (0.92) |
Total from investment operations | 1.31 | 1.63 | 0.01 | (10.00) | (0.51) |
Distributions paid to shareholders from: | |||||
Net investment income | (0.46) | (0.41) | (0.34) | (0.20) | (0.41) |
Return of capital | — | — | — | — | (0.05) |
Total distributions | (0.46) | (0.41) | (0.34) | (0.20) | (0.46) |
Net asset value, end of period | $12.73 | $11.88 | $10.66 | $10.99 | $21.19 |
Total Return (a) | 11.12% | 15.47% | 0.20% | (47.50)% | (2.38)% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $8,908 | $8,913 | $10,663 | $12,643 | $26,486 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.70% | 0.70% | 0.70% | 0.70% | 0.71%(b) |
Ratio of net expenses to average net assets | 0.70% | 0.70% | 0.70% | 0.70% | 0.71%(b) |
Ratio of net investment income (loss) to average net assets | 3.74% | 3.39% | 3.00% | 1.27% | 1.74% |
Portfolio turnover rate (c) | 50% | 61% | 179%(d) | 40% | 28% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(b) | Includes excise tax. If this excise tax expense was not included, the expense ratio would have been 0.70%. |
(c) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
(d) | The variation in the portfolio turnover rate is due to the change in the Fund's underlying index effective on the close of business December 18, 2015, which resulted in a complete rebalance of the Fund's portfolio. |
For a share outstanding throughout each period
(formerly First Trust International IPO ETF)
Year Ended September 30, | Period Ended 9/30/2015 (a) | |||
2018 | 2017 | 2016 | ||
Net asset value, beginning of period | $34.51 | $27.47 | $25.24 | $30.00 |
Income from investment operations: | ||||
Net investment income (loss) | 0.49 | 0.22 | 0.51 | 0.37 |
Net realized and unrealized gain (loss) | 0.66 | 7.07 | 2.14 | (4.76) |
Total from investment operations | 1.15 | 7.29 | 2.65 | (4.39) |
Distributions paid to shareholders from: | ||||
Net investment income | (0.56) | (0.25) | (0.42) | (0.37) |
Net asset value, end of period | $35.10 | $34.51 | $27.47 | $25.24 |
Total Return (b) | 3.35% | 26.71% | 10.62% | (14.74)% |
Ratios/supplemental data: | ||||
Net assets, end of period (in 000’s) | $26,322 | $22,429 | $2,748 | $1,262 |
Ratios to average net assets: | ||||
Ratio of total expenses to average net assets | 0.70% | 0.70% | 0.71%(c) | 0.70%(d) |
Ratio of net expenses to average net assets | 0.70% | 0.70% | 0.71%(c) | 0.70%(d) |
Ratio of net investment income (loss) to average net assets | 1.42% | 1.62% | 2.25% | 1.01%(d) |
Portfolio turnover rate (e) | 83% | 58% | 75% | 98% |
(a) | The Inception date is November 4, 2014, which is consistent with the Fund’s commencement of investment operations and is the date the initial creation units were established. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(c) | Includes excise tax. If this excise tax expense was not included, the expense ratio would have been 0.70%. |
(d) | Annualized. |
(e) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $49.00 | $39.19 | $31.52 | $35.38 | $33.83 |
Income from investment operations: | |||||
Net investment income (loss) | 0.52 | 0.57 | 0.42 | 0.38 | 0.51 |
Net realized and unrealized gain (loss) | (1.32) | 9.82 | 7.65 | (3.88) | 1.61 |
Total from investment operations | (0.80) | 10.39 | 8.07 | (3.50) | 2.12 |
Distributions paid to shareholders from: | |||||
Net investment income | (0.58) | (0.58) | (0.40) | (0.36) | (0.57) |
Net asset value, end of period | $47.62 | $49.00 | $39.19 | $31.52 | $35.38 |
Total Return (a) | (1.66)% | 26.73% | 25.77% | (9.97)% | 6.19% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $33,333 | $26,951 | $13,715 | $11,034 | $14,152 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.74% | 0.84% | 1.07% | 0.99% | 0.98% |
Ratio of net expenses to average net assets | 0.70% | 0.70% | 0.70% | 0.70% | 0.70% |
Ratio of net investment income (loss) to average net assets | 1.10% | 1.44% | 1.27% | 1.02% | 1.45% |
Portfolio turnover rate (b) | 60% | 32% | 37% | 18% | 35% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | Period Ended 9/30/2015 (a) | |||
2018 | 2017 | 2016 | ||
Net asset value, beginning of period | $21.85 | $19.77 | $17.15 | $20.00 |
Income from investment operations: | ||||
Net investment income (loss) | 0.02 | 0.03 | 0.23 | (0.01) |
Net realized and unrealized gain (loss) | 6.64 | 2.09 | 2.62 | (2.84) |
Total from investment operations | 6.66 | 2.12 | 2.85 | (2.85) |
Distributions paid to shareholders from: | ||||
Net investment income | (0.02) | (0.04) | (0.23) | — |
Net asset value, end of period | $28.49 | $21.85 | $19.77 | $17.15 |
Total Return (b) | 30.49% | 10.73% | 16.83% | (14.25)% |
Ratios/supplemental data: | ||||
Net assets, end of period (in 000’s) | $847,673 | $313,575 | $102,815 | $79,753 |
Ratios to average net assets: | ||||
Ratio of total expenses to average net assets | 0.60% | 0.60% | 0.60% | 0.60%(c) |
Ratio of net expenses to average net assets | 0.60% | 0.60% | 0.60% | 0.60%(c) |
Ratio of net investment income (loss) to average net assets | 0.04% | 0.13% | 1.37% | (0.30)%(c) |
Portfolio turnover rate (d) | 56% | 67% | 49% | 7% |
(a) | The Inception date is July 6, 2015, which is consistent with the Fund’s commencement of investment operations and is the date the initial creation units were established. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(c) | Annualized. |
(d) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $40.25 | $33.39 | $33.46 | $37.93 | $38.75 |
Income from investment operations: | |||||
Net investment income (loss) | 0.98 | 0.87 | 0.80 | 0.64 | 0.51 |
Net realized and unrealized gain (loss) | (3.98) | 6.87 | (0.09) | (4.50) | (0.84) |
Total from investment operations | (3.00) | 7.74 | 0.71 | (3.86) | (0.33) |
Distributions paid to shareholders from: | |||||
Net investment income | (0.92) | (0.88) | (0.78) | (0.61) | (0.49) |
Net asset value, end of period | $36.33 | $40.25 | $33.39 | $33.46 | $37.93 |
Total Return (a) | (7.57)% | 23.46% | 2.24% | (10.38)% | (0.92)% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $18,167 | $18,112 | $21,705 | $31,791 | $64,481 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.70% | 0.70% | 0.70% | 0.70% | 0.70% |
Ratio of net expenses to average net assets | 0.70% | 0.70% | 0.70% | 0.70% | 0.70% |
Ratio of net investment income (loss) to average net assets | 2.44% | 2.20% | 2.16% | 1.34% | 1.35% |
Portfolio turnover rate (b) | 16% | 17% | 17% | 18% | 20% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $50.52 | $41.29 | $34.93 | $36.86 | $32.10 |
Income from investment operations: | |||||
Net investment income (loss) | 0.72 | 0.44 | 0.47 | 0.36 | 0.43 |
Net realized and unrealized gain (loss) | (0.60) | 9.29 | 6.34 | (1.95) | 4.75 |
Total from investment operations | 0.12 | 9.73 | 6.81 | (1.59) | 5.18 |
Distributions paid to shareholders from: | |||||
Net investment income | (1.01) | (0.50) | (0.45) | (0.34) | (0.42) |
Net asset value, end of period | $49.63 | $50.52 | $41.29 | $34.93 | $36.86 |
Total Return (a) | 0.20% | 23.68% | 19.60% | (4.35)% | 16.16% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $17,370 | $17,683 | $10,324 | $10,479 | $11,059 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.70% | 0.70% | 0.70% | 0.70% | 0.70% |
Ratio of net expenses to average net assets | 0.70% | 0.70% | 0.70% | 0.70% | 0.70% |
Ratio of net investment income (loss) to average net assets | 1.34% | 1.04% | 1.14% | 0.93% | 1.22% |
Portfolio turnover rate (b) | 80% | 18% | 28% | 28% | 32% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
For a share outstanding throughout each period
Year Ended September 30, | |||||
2018 | 2017 | 2016 | 2015 | 2014 | |
Net asset value, beginning of period | $13.61 | $11.82 | $11.92 | $13.50 | $12.94 |
Income from investment operations: | |||||
Net investment income (loss) | 0.59 | 0.42 | 0.55 | 0.55 | 0.58 |
Net realized and unrealized gain (loss) | (0.49) | 1.79 | (0.10) | (1.59) | 0.57 |
Total from investment operations | 0.10 | 2.21 | 0.45 | (1.04) | 1.15 |
Distributions paid to shareholders from: | |||||
Net investment income | (0.59) | (0.42) | (0.55) | (0.54) | (0.59) |
Net asset value, end of period | $13.12 | $13.61 | $11.82 | $11.92 | $13.50 |
Total Return (a) | 0.74% | 18.93% | 3.88% | (7.90)% | 8.68% |
Ratios/supplemental data: | |||||
Net assets, end of period (in 000’s) | $454,824 | $529,527 | $165,490 | $165,751 | $167,480 |
Ratios to average net assets: | |||||
Ratio of total expenses to average net assets | 0.57% | 0.60% | 0.60% | 0.60% | 0.64% |
Ratio of net expenses to average net assets | 0.57% | 0.60% | 0.60% | 0.60% | 0.60% |
Ratio of net investment income (loss) to average net assets | 4.25% | 3.96% | 4.63% | 4.45% | 4.90% |
Portfolio turnover rate (b) | 35% | 21% | 34% | 33% | 32% |
(a) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
(b) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
First Trust Exchange-Traded Fund II |
First Trust Global Engineering and Construction ETF
First Trust Global Wind Energy ETF
First Trust International Equity Opportunities ETF
(formerly First Trust International IPO ETF)
First Trust Nasdaq Cybersecurity ETF
First Trust Nasdaq Smartphone Index Fund
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(800) 621-1675
www.ftportfolios.com
First Trust Exchange-Traded Fund IV
(the “Trust”)
First Trust Heitman Global Prime Real Estate ETF
(the “Fund”)
Supplement To the Prospectus and Statement of Additional Information
Dated March 1, 2019
Dated March 13, 2019
The Board of Trustees of First Trust Exchange-Traded Fund IV (the “Trust”) has approved a transaction to combine the Fund with First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (“FFR”), an exchange-traded index fund that seeks investment results that correspond generally to the price and yield (before fees and expenses) of an equity index called the FTSE EPRA/NAREIT Developed Index. Pursuant to this transaction, Fund shareholders will become shareholders of FFR.
In order for the transaction to occur, the shareholders of the Fund must approve the transaction. If approved, shares of the Fund would be exchanged, on a tax-free basis for federal income tax purposes, for shares of FFR with an equal aggregate net asset value, and Fund shareholders will become shareholders of FFR.
A special meeting of shareholders of the Fund for the purpose of voting on the transaction will be held. If the required approval is obtained, it is anticipated that the transaction will be consummated shortly after the special shareholder meeting.
The Fund will continue sales and redemptions of shares as described in the Fund’s prospectus. Holders of shares of the Fund purchased after the record date set for the special meeting of shareholders will not be entitled to vote those shares at the special meeting.
Please Keep this Supplement with Your Fund Prospectus and
Statement of Additional Information for Future Reference
First Trust Exchange-Traded Fund IV |
Ticker Symbol: | PRME |
Exchange: | NYSE Arca |
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) | None |
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees | 0.95% |
Distribution and Service (12b-1) Fees | 0.00% |
Other Expenses | 0.00% |
Total Annual Fund Operating Expenses | 0.95% |
1 Year | 3 Years | 5 Years | 10 Years |
$97 | $303 | $525 | $1,166 |
Calendar Year Total Returns as of 12/31
PRME | First Trust Heitman Global Prime Real Estate ETF | Override |
2016 | 0.84% | |
2017 | 10.21% | |
2018 | -6.88% |
Best Quarter | Worst Quarter | ||
4.15% | June 30, 2017 | -7.68% | December 31, 2018 |
1 Year | Since Inception | Inception Date | |
Return Before Taxes | -6.88% | 1.16% | 11/11/2015 |
Return After Taxes on Distributions | -8.04% | -0.77% | |
Return After Taxes on Distributions and Sale of Shares | -4.04% | 0.06% | |
FTSE EPRA/NAREIT Developed Index (reflects no deduction for fees, expenses or taxes) | -4.74% | 4.30% |
Heitman International Real Estate Securities GmbH (“Heitman GmbH” or a “Sub-Sub-Advisor”)
• | Jerry Ehlinger, CFA, Managing Director of HRES LLC and Lead Portfolio Manager in the North American Public Real Estate Securities group; |
• | John White, Managing Director of Heitman HK Limited and Lead Portfolio Manager in the Asia-Pacific Public Real Estate Securities group; |
• | Jacques Perdrix, Senior Vice President of HRES LLC’s European Public Real Estate Securities group; and |
• | Andreas Welter, Senior Vice President of HRES LLC’s European Public Real Estate Securities group. |
• | Jerry Ehlinger, CFA, is Managing Director of HRES LLC and the Lead Portfolio Manager in Heitman’s North American Public Real Estate Securities group. He also serves as a Portfolio Manager for the firm’s global real estate securities strategies. Throughout his career, Jerry has held a number of related investment positions in the REIT industry. Before joining Heitman in 2013, Jerry was Lead Portfolio Manager and Head of Real Estate Securities, Americas at DB/RREEF Real Estate. Prior, Jerry served as Senior Vice President and Portfolio Manager of Heitman’s real estate securities group from 2000 to 2004. He began his career at Morgan Stanley in 1996 where he primarily covered the REIT sector both as a sell-side analyst and as a senior research associate at Morgan Stanley Asset Management. Jerry received an MS in Finance, Investment and Banking from the University of Wisconsin-Madison and a BS in Finance from the University of Wisconsin-Whitewater. Among other professional affiliations, Jerry is a member of the National Multi Housing Council, International Council of Shopping Centers, the CFA Institute, the CFA Society of Chicago, and the National Association of Real Estate Investment Trusts. |
• | John White is Managing Director of Heitman HK Limited and the Lead Portfolio Manager in Heitman’s Asia-Pacific Public Real Estate Securities group. He is an equity owner of the firm and a member of Heitman’s Management Committee. He also serves as a Portfolio Manager for the firm's global real estate securities strategies. John has over 20 years of experience in the public and private equity and debt real estate markets across the Asia-Pacific region. Prior to joining Heitman in 2010, John was co-head of real estate securities at Challenger (Heitman’s Asian JV partner for real estate securities) for five years; he was also senior investment manager, real estate securities at HSBC Asset Management from 2001. Before moving to investment management, John worked in investment banking as a senior property analyst at HSBC and as a manager—real estate credit at ANZ Banking Group in Australia and in South-East Asia. He began his career as a real estate valuer at Landauer and Chesterton. John received a BBus in Land Economy from University of Western Sydney-Hawkesbury and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. He is a member of the Royal Institute of Chartered Surveyors, the Asian Public Real Estate Association, the Australian Property Institute and the Financial Services Institute of Australasia. |
• | Jacques Perdrix is a Senior Vice President in Heitman’s European Public Real Estate Securities group. His role with Heitman focuses on portfolio management, including fundamental company and market analysis. Prior to joining Heitman, Mr. Perdrix was at Griffin Capital Management where he worked as an analyst and assistant portfolio manager on long-only and long/short equity and fixed income funds covering mid/large-caps on a broad range of sectors and geographies. Previously, Mr. Perdrix worked at equity long/short hedge fund Gugner Partners as a senior analyst and back-up trader focusing on European small/mid-caps across all sectors. Mr. Perdrix started his career within Citigroup’s Investment Banking Division, M&A Financial Institutions Group, in both Paris and London. Mr. Perdrix, a French national, received a Specialised Master’s in Corporate Finance from EM Lyon School of Management and a Master of Science in Management from ESC Grenoble School of Management. He is FSA qualified. |
• | Andreas Welter is a Senior Vice President in Heitman’s European Public Real Estate Securities group. His role with Heitman focuses on portfolio construction, fundamental company and market analysis supporting the Portfolio Management team. Prior to joining the firm, Mr. Welter was at Deutsche Bank AG, where he was a senior sell-side equity research analyst for three years. In that time, Mr. Welter covered companies in various industry sectors in Germany (e.g., real estate, financials, construction, logistics). Previously, Mr. Welter worked at the Middle Office & Advisory Desk of B. Metzler seel. Sohn & Co., one of Germany’s largest family-owned investment managers. Mr. Welter earned the title of Bankkaufmann (apprenticeship in banking) from the Chamber of Commerce and Industry Frankfurt and holds a Diploma in International Business Administration (Diplom-Betriebswirt) from one of the top-ranked universities in Europe (Hochschule Darmstadt). |
Bid/Ask Midpoint vs. Net Asset Value
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 39 | 31 | 24 | 36 |
0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% | |
12 Months Ended 12/31/2018 | 36 | 46 | 31 | 8 |
Total Returns as of October 31, 2018
Average Annual | Cumulative | |||
1 Year | Inception (11/11/2015) | Inception (11/11/2015) | ||
Fund Performance | ||||
Net Asset Value | 0.77% | 2.63% | 8.01% | |
Market Price | 1.96% | 2.86% | 8.74% | |
Index Performance | ||||
FTSE EPRA/NAREIT Developed Index | 1.23% | 5.21% | 16.28% |
For a share outstanding throughout each period
Year Ended October 31, | Period Ended 10/31/2016 (a) | ||
2018 | 2017 | ||
Net asset value, beginning of period | $20.17 | $19.67 | $20.16 |
Income from investment operations: | |||
Net investment income (loss) | 1.08 | 0.31 | 0.40 |
Net realized and unrealized gain (loss) | (0.89) | 1.13 | (0.45) |
Total from investment operations | 0.19 | 1.44 | (0.05) |
Distributions paid to shareholders from: | |||
Net investment income | (1.25) | (0.94) | (0.44) |
Net asset value, end of period | $19.11 | $20.17 | $19.67 |
Total Return (b) | 0.77% | 7.48% | (0.28)% |
Ratios/supplemental data: | |||
Net assets, end of period (in 000’s) | $1,912 | $1,008 | $984 |
Ratio of total expenses to average net assets | 0.95% | 0.95% | 0.95%(c) |
Ratio of net investment income (loss) to average net assets | 5.55% | 1.51% | 2.10%(c) |
Portfolio turnover rate (d) | 85% | 104% | 78% |
(a) | Inception date is November 11, 2015, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(c) | Annualized. |
(d) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
First Trust Exchange-Traded Fund IV |
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
(800) 621-1675
www.ftportfolios.com
FIRST TRUST EXCHANGE-TRADED FUND II
(the “Trust”)
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
(the “Fund”)
SUPPLEMENT TO THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 2019
DATED MARCH 13, 2019
The Board of Trustees of First Trust Exchange-Traded Fund II (the “Trust”) has approved a transaction to combine the First Trust Heitman Global Prime Real Estate ETF (“PRME”) with the Fund. Pursuant to this transaction, PRME shareholders will become shareholders of the Fund.
In order for the transaction to occur, the shareholders of PRME must approve the transaction. If approved, shares of PRME would be exchanged, on a tax-free basis for federal income tax purposes, for shares of the Fund with an equal aggregate net asset value, and PRME shareholders will become shareholders of the Fund.
PLEASE KEEP THIS SUPPLEMENT WITH YOUR FUND’S PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE
FUND NAME | TICKER SYMBOL | EXCHANGE | ||
First Trust BICK Index Fund | BICK | Nasdaq | ||
First Trust Cloud Computing ETF | SKYY | Nasdaq | ||
First Trust Dow Jones Global Select Dividend Index Fund | FGD | NYSE Arca | ||
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | FFR | NYSE Arca | ||
First Trust Global Engineering and Construction ETF | FLM | NYSE Arca | ||
First Trust Global Wind Energy ETF | FAN | NYSE Arca | ||
First Trust Indxx Global Agriculture ETF | FTAG | Nasdaq | ||
First Trust Indxx Global Natural Resources Income ETF | FTRI | Nasdaq | ||
First Trust International Equity Opportunities ETF (formerly First Trust International IPO ETF) | FPXI | Nasdaq | ||
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | GRID | Nasdaq | ||
First Trust Nasdaq Cybersecurity ETF | CIBR | Nasdaq | ||
First Trust NASDAQ Global Auto Index Fund | CARZ | Nasdaq | ||
First Trust Nasdaq Smartphone Index Fund | FONE | Nasdaq | ||
First Trust STOXX® European Select Dividend Index Fund | FDD | NYSE Arca |
1 | |
3 | |
3 | |
5 | |
11 | |
12 | |
15 | |
24 | |
25 | |
27 | |
32 | |
34 | |
38 | |
39 | |
44 | |
47 | |
51 | |
53 | |
53 | |
53 | |
A-1 | |
B-1 |
Fund Name | Classification |
First Trust BICK Index Fund | Diversified |
First Trust Cloud Computing ETF | Diversified |
First Trust Dow Jones Global Select Dividend Index Fund | Diversified |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | Diversified |
First Trust Global Engineering and Construction ETF | Diversified |
First Trust Global Wind Energy ETF | Non-diversified |
First Trust Indxx Global Agriculture ETF | Non-diversified |
First Trust Indxx Global Natural Resources Income ETF | Non-diversified |
First Trust International Equity Opportunities ETF (formerly First Trust International IPO ETF) | Non-diversified |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | Non-diversified |
First Trust Nasdaq Cybersecurity ETF | Non-diversified |
First Trust NASDAQ Global Auto Index Fund | Non-diversified |
First Trust Nasdaq Smartphone Index Fund | Diversified |
First Trust STOXX® European Select Dividend Index Fund | Diversified |
(1) | A Fund may not issue senior securities, except as permitted under the 1940 Act. |
(2) | Except for the First Trust Nasdaq Cybersecurity ETF, a Fund may not borrow money, except that a Fund may (i) borrow money from banks for temporary or emergency purposes (but not for leverage or the purchase of investments) and (ii) engage in other transactions permissible under the 1940 Act that may involve a borrowing (such as obtaining short-term credits as are necessary for the clearance of transactions, engaging in delayed-delivery |
transactions, or purchasing certain futures, forward contracts and options), provided that the combination of (i) and (ii) shall not exceed 33⅓% of the value of a Fund’s total assets (including the amount borrowed), less a Fund’s liabilities (other than borrowings). The First Trust Nasdaq Cybersecurity ETF may not borrow money, except as permitted under the 1940 Act. | |
(3) | A Fund will not underwrite the securities of other issuers except to the extent the Fund may be considered an underwriter under the Securities Act of 1933, as amended (the “1933 Act”), in connection with the purchase and sale of portfolio securities. |
(4) | A Fund will not purchase or sell real estate or interests therein, unless acquired as a result of ownership of securities or other instruments (but this shall not prohibit a Fund from purchasing or selling securities or other instruments backed by real estate or of issuers engaged in real estate activities). |
(5) | A Fund may not make loans to other persons, except through (i) the purchase of debt securities permissible under a Fund’s investment policies, (ii) repurchase agreements, or (iii) the lending of portfolio securities, provided that no such loan of portfolio securities may be made by a Fund if, as a result, the aggregate of such loans would exceed 33⅓% of the value of a Fund’s total assets. |
(6) | A Fund may not purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from purchasing or selling options, futures contracts, forward contracts or other derivative instruments, or from investing in securities or other instruments backed by physical commodities). |
(7) | A Fund may not invest 25% or more of the value of its total assets in securities of issuers in any one industry or group of industries, except to the extent that the Fund’s Index is based on concentrations in an industry or a group of industries. This restriction does not apply to obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities. |
Fund | Index |
First Trust BICK Index Fund | ISE BICKTM (Brazil, India, China, South Korea) Index |
First Trust Cloud Computing ETF | ISE Cloud Computing IndexTM |
First Trust Dow Jones Global Select Dividend Index Fund | Dow Jones Global Select Dividend IndexSM |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | FTSE EPRA/NAREIT Developed Index |
First Trust Global Engineering and Construction ETF | ISE Global Engineering and ConstructionTM Index |
First Trust Global Wind Energy ETF | ISE Clean Edge Global Wind EnergyTM Index |
First Trust Indxx Global Agriculture ETF | Indxx Global Agriculture Index |
First Trust Indxx Global Natural Resources Income ETF | Indxx Global Natural Resources Income Index |
First Trust International Equity Opportunities ETF | IPOX International Index |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | NASDAQ OMX® Clean Edge® Smart Grid Infrastructure IndexSM |
First Trust Nasdaq Cybersecurity ETF | Nasdaq CTA Cybersecurity IndexSM |
First Trust NASDAQ Global Auto Index Fund | NASDAQ OMX Global Auto IndexSM |
First Trust Nasdaq Smartphone Index Fund | Nasdaq CTA Smartphone IndexSM |
First Trust STOXX® European Select Dividend Index Fund | STOXX® Europe Select Dividend 30 Index |
(1) | A Fund may invest in U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies |
or instrumentalities. U.S. government securities include securities that are issued or guaranteed by the United States Treasury, by various agencies of the U.S. government, or by various instrumentalities that have been established or sponsored by the U.S. government. U.S. Treasury securities are backed by the “full faith and credit” of the United States. Securities issued or guaranteed by federal agencies and U.S. government-sponsored instrumentalities may or may not be backed by the full faith and credit of the United States. Some of the U.S. government agencies that issue or guarantee securities include the Export-Import Bank of the United States, the Farmers Home Administration, the Federal Housing Administration, the Maritime Administration, the Small Business Administration and The Tennessee Valley Authority. An instrumentality of the U.S. government is a government agency organized under federal charter with government supervision. Instrumentalities issuing or guaranteeing securities include, among others, Federal Home Loan Banks, the Federal Land Banks, the Central Bank for Cooperatives, Federal Intermediate Credit Banks and FNMA. In the case of those U.S. government securities not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality issuing or guaranteeing the security for ultimate repayment, and may not be able to assert a claim against the United States itself in the event that the agency or instrumentality does not meet its commitment. The U.S. government, its agencies and instrumentalities do not guarantee the market value of their securities, and consequently, the value of such securities may fluctuate. In addition, each Fund may invest in sovereign debt obligations of non-U.S. countries. A sovereign debtor’s willingness or ability to repay principal and interest in a timely manner may be affected by a number of factors, including its cash flow situation, the extent of its non-U.S. reserves, the availability of sufficient non-U.S. exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor’s policy toward principal international lenders and the political constraints to which it may be subject. | |
(2) | A Fund may invest in certificates of deposit issued against funds deposited in a bank or savings and loan association. Such certificates are for a definite period of time, earn a specified rate of return, and are normally negotiable. If such certificates of deposit are non-negotiable, they will be considered illiquid securities and be subject to a Fund’s 15% restriction on investments in illiquid securities. Pursuant to the certificate of deposit, the issuer agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current FDIC regulations, the maximum insurance payable as to any one certificate of deposit is $250,000; therefore, certificates of deposit purchased by a Fund may not be fully insured. A Fund may only invest in certificates of deposit issued by U.S. banks with at least $1 billion in assets. |
(3) | A Fund may invest in bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then “accepted” by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at the going rate of interest for a specific maturity. |
(4) | A Fund may invest in repurchase agreements, which involve purchases of debt securities with counterparties that are deemed by First Trust to present acceptable credit risks. In such an action, at the time a Fund purchases the security, it simultaneously agrees to resell and redeliver the security to the seller, who also simultaneously agrees to buy back the security at a fixed price and time. This assures a predetermined yield for a Fund during its holding period since the resale price is always greater than the purchase price and reflects an agreed upon market rate. Such actions afford an opportunity for a Fund to invest temporarily available cash. A Fund may enter into repurchase agreements only with respect to obligations of the U.S. government, its agencies or instrumentalities; certificates of deposit; or bankers’ acceptances in which a Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying securities. The risk to a Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the affected Fund is entitled to sell the underlying collateral. If the value of the collateral declines after the agreement is entered into, however, and if the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, a Fund could incur a loss of both principal and interest. The portfolio managers monitor the value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. The portfolio managers do so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to a Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of a Fund to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws. |
(5) | A Fund may invest in bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the yields of these investments will be reduced. |
(6) | A Fund may invest in commercial paper, which are short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between a Fund and a corporation. There is no secondary market for the notes. However, they are redeemable by a Fund at any time. A Fund’s portfolio managers will consider the financial condition of the corporation (e.g., earning power, cash flow and other liquidity ratios) and will continuously monitor the corporation’s ability to meet all of its financial obligations, because a Fund’s liquidity might be impaired if the corporation were unable to pay principal and interest on demand. A Fund may invest in commercial paper only if it has received the highest rating from at least one nationally recognized statistical rating organization or, if unrated, judged by First Trust to be of comparable quality. |
(7) | A Fund may invest in shares of money market funds, as consistent with its investment objective and policies. Shares of money market funds are subject to management fees and other expenses of those funds. Therefore, investments in money market funds will cause a Fund to bear proportionately the costs incurred by the money market funds’ operations. At the same time, a Fund will continue to pay its own management fees and expenses with respect to all of its assets, including any portion invested in the shares of other investment companies. It is possible for a Fund to lose money by investing in money market funds. |
Portfolio Turnover Rate | ||
Fund | Fiscal Year Ended September 30, | |
2018 | 2017 | |
First Trust BICK Index Fund | 65% | 86% |
First Trust Cloud Computing ETF | 7% | 14% |
First Trust Dow Jones Global Select Dividend Index Fund | 31% | 35% |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | 9% | 6% |
First Trust Global Engineering and Construction ETF | 16% | 20% |
First Trust Global Wind Energy ETF | 22% | 78% |
First Trust Indxx Global Agriculture ETF | 30% | 38% |
First Trust Indxx Global Natural Resources Income ETF | 50% | 61% |
First Trust International Equity Opportunities ETF | 83% | 58% |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | 60% | 32% |
First Trust Nasdaq Cybersecurity ETF | 56% | 67% |
First Trust NASDAQ Global Auto Index Fund | 16% | 17% |
First Trust Nasdaq Smartphone Index Fund | 80% | 18% |
First Trust STOXX® European Select Dividend Index Fund | 35% | 21% |
FIRST TRUST CLOUD COMPUTING ETF | |
Gross income from securities lending activities | $218,112 |
Fees and/or compensation for securities lending activities and related services | |
Fees paid to securities lending agent from a revenue split | 14,003 |
Fees paid for any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split | 9,814 |
Administrative fees not included in revenue split | 0 |
Indemnification fee not included in revenue split | 0 |
Rebate (paid to borrower) | 105,707 |
Other fees not included in revenue split (specify) | 0 |
Aggregate fees/compensation for securities lending activities | 129,524 |
Net income from securities lending activities | $88,588 |
FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF | |
Gross income from securities lending activities | $28,947 |
Fees and/or compensation for securities lending activities and related services | |
Fees paid to securities lending agent from a revenue split | 3,954 |
Fees paid for any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split | 282 |
Administrative fees not included in revenue split | 0 |
Indemnification fee not included in revenue split | 0 |
Rebate (paid to borrower) | 1,388 |
Other fees not included in revenue split (specify) | 0 |
Aggregate fees/compensation for securities lending activities | 5,624 |
Net income from securities lending activities | $23,323 |
FIRST TRUST GLOBAL WIND ENERGY ETF | |
Gross income from securities lending activities | $564,160 |
Fees and/or compensation for securities lending activities and related services | |
Fees paid to securities lending agent from a revenue split | 78,687 |
Fees paid for any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split | 4,254 |
Administrative fees not included in revenue split | 0 |
Indemnification fee not included in revenue split | 0 |
Rebate (paid to borrower) | 16,461 |
Other fees not included in revenue split (specify) | 0 |
Aggregate fees/compensation for securities lending activities | 99,402 |
Net income from securities lending activities | $464,758 |
FIRST TRUST INDXX GLOBAL NATURAL RESOURCES INCOME ETF | |
Gross income from securities lending activities | $4,042 |
Fees and/or compensation for securities lending activities and related services | |
Fees paid to securities lending agent from a revenue split | 536 |
Fees paid for any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split | 42 |
Administrative fees not included in revenue split | 0 |
Indemnification fee not included in revenue split | 0 |
Rebate (paid to borrower) | 327 |
Other fees not included in revenue split (specify) | 0 |
Aggregate fees/compensation for securities lending activities | 905 |
Net income from securities lending activities | $3,137 |
FIRST TRUST NASDAQ® CLEAN EDGE® SMART GRID INFRASTRUCTURE INDEX FUND | |
Gross income from securities lending activities | $62,671 |
Fees and/or compensation for securities lending activities and related services | |
Fees paid to securities lending agent from a revenue split | 8,847 |
Fees paid for any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split | 406 |
Administrative fees not included in revenue split | 0 |
Indemnification fee not included in revenue split | 0 |
Rebate (paid to borrower) | 601 |
Other fees not included in revenue split (specify) | 0 |
Aggregate fees/compensation for securities lending activities | 9,854 |
Net income from securities lending activities | $52,817 |
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND | |
Gross income from securities lending activities | $24,235 |
Fees and/or compensation for securities lending activities and related services | |
Fees paid to securities lending agent from a revenue split | 3,059 |
Fees paid for any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split | 492 |
Administrative fees not included in revenue split | 0 |
Indemnification fee not included in revenue split | 0 |
Rebate (paid to borrower) | 3,133 |
Other fees not included in revenue split (specify) | 0 |
Aggregate fees/compensation for securities lending activities | 6,684 |
Net income from securities lending activities | $17,551 |
FIRST TRUST NASDAQ SMARTPHONE INDEX FUND | |
Gross income from securities lending activities | $12,463 |
Fees and/or compensation for securities lending activities and related services | |
Fees paid to securities lending agent from a revenue split | 1,723 |
Fees paid for any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split | 147 |
Administrative fees not included in revenue split | 0 |
Indemnification fee not included in revenue split | 0 |
Rebate (paid to borrower) | 601 |
Other fees not included in revenue split (specify) | 0 |
Aggregate fees/compensation for securities lending activities | 2,471 |
Net income from securities lending activities | $9,992 |
Fund | Index | Index Provider | Annual License Fee |
First Trust Dow Jones Global Select Dividend Index Fund | Dow Jones Global Select Dividend IndexSM | S&P Dow Jones Indices LLC | Greater of: (i) one quarter of 0.05% of the average net assets in the Fund (at any quarter end) or (ii) 10% of the percentage of Fund assets paid for Fund operating expenses and management fees, including 12b–1 fees, administrative fees, and all other asset-based costs of the Fund (excluding brokerage costs), provided, that, this fee does not exceed 0.08% of the average net assets (at any quarter end), and further, provided, that, the minimum annual payment will be $25,000. |
Fund | Index | Index Provider | Annual License Fee |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | FTSE EPRA/NAREIT Developed Markets Real Estate Index | FTSE International Limited | 0.12% of the average daily net assets of the Fund. |
First Trust Global Engineering and Construction ETF | ISE Global Engineering and ConstructionTM Index | Nasdaq, Inc. | 0.10% of the average daily net assets of the Fund. |
First Trust Global Wind Energy ETF | ISE Clean Edge Global Wind EnergyTM Index | Nasdaq, Inc. | 0.10% of the average daily net assets of the Fund. |
First Trust NASDAQ® Smart Grid Infrastructure Index Fund | NASDAQ OMX® Clean Edge® Smart Grid Infrastructure IndexSM | Nasdaq, Inc. | 0.09% of the average daily net assets of the Fund. |
First Trust STOXX® European Select Dividend Index Fund | Dow Jones STOXX® Select Dividend 30 Index | STOXX Limited | 0.06% of the average daily net assets of the Fund, assessed quarterly, provided that, the minimum annual payment shall be $75,000. |
Name and Year of Birth | Position and Offices with Trust | Term of Office and Year First Elected or Appointed | Principal Occupations During Past 5 Years | Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During the Past 5 Years |
TRUSTEE WHO IS AN INTERESTED PERSON OF THE TRUST | |||||
James A. Bowen (1) 1955 | Chairman of the Board and Trustee | • Indefinite term • Since inception | Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) | 163 Portfolios | None |
INDEPENDENT TRUSTEES | |||||
Richard E. Erickson 1951 | Trustee | • Indefinite term • Since inception | Physician; Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007 to November 2015) | 163 Portfolios | None |
Thomas R. Kadlec 1957 | Trustee | • Indefinite term • Since inception | President, ADM Investor Services, Inc. (Futures Commission Merchant) | 163 Portfolios | Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association |
Robert F. Keith 1956 | Trustee | • Indefinite term • Since inception | President, Hibs Enterprises (Financial and Management Consulting) | 163 Portfolios | Director of Trust Company of Illinois |
Name and Year of Birth | Position and Offices with Trust | Term of Office and Year First Elected or Appointed | Principal Occupations During Past 5 Years | Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During the Past 5 Years |
INDEPENDENT TRUSTEES | |||||
Niel B. Nielson 1954 | Trustee | • Indefinite term • Since inception | Senior Advisor (August 2018 to present), Managing Director and Chief Operating Officer (January 2015 to August 2018), Pelita Harapan Educational Foundation (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services) | 163 Portfolios | Director of Covenant Transport, Inc. (May 2003 to May 2014) |
Name and Year of Birth | Position and Offices with Trust | Term of Office and Length of Service | Principal Occupations During Past 5 Years |
OFFICERS OF THE TRUST | |||
James M. Dykas 1966 | President and Chief Executive Officer | • Indefinite term • Since January 2016 | Managing Director and Chief Financial Officer (January 2016 to present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
W. Scott Jardine 1960 | Secretary and Chief Legal Officer | • Indefinite term • Since inception | General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; and Secretary, Stonebridge Advisors LLC |
Daniel J. Lindquist 1970 | Vice President | • Indefinite term • Since inception | Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Kristi A. Maher 1966 | Chief Compliance Officer and Assistant Secretary | • Indefinite term • Since inception | Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Donald P. Swade 1972 | Treasurer, Chief Financial Officer and Chief Accounting Officer | • Indefinite term • Since January 2016 | Senior Vice President (July 2016 to Present), Vice President (April 2012 to July 2016), First Trust Advisors L.P. and First Trust Portfolios L.P. |
Roger F. Testin 1966 | Vice President | • Indefinite term • Since inception | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Stan Ueland 1970 | Vice President | • Indefinite term • Since inception | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
(1) | Mr. Bowen is deemed an “interested person” of the Trust due to his position as Chief Executive Officer of First Trust, investment advisor of the Fund. |
Name of Trustee | Total Compensation from the Funds (1) | Total Compensation from the First Trust Fund Complex (2) |
Richard E. Erickson | $26,109 | $424,710 |
Thomas R. Kadlec | $25,579 | $413,499 |
Robert F. Keith | $25,579 | $414,497 |
Niel B. Nielson | $25,057 | $403,375 |
(1) | The compensation paid by the Funds to the Independent Trustees for the fiscal year ended September 30, 2018 for services to the Funds. |
(2) | The total compensation paid to the Independent Trustees for the calendar year ended December 31, 2018 for services to the 161 portfolios existing in 2018, which consisted of 7 open-end mutual funds, 15 closed-end funds and 139 exchange-traded funds. |
Interested Trustee | Independent Trustees | ||||
Fund | James A. Bowen | Richard E. Erickson | Thomas R. Kadlec | Robert F. Keith | Niel B. Nielson |
First Trust Dow Jones Global Select Dividend Index Fund | None | $10,001–$50,000 | None | $10,001–$50,000 | $1–$10,000 |
First Trust STOXX® European Select Dividend Index Fund | None | $10,001–$50,000 | None | None | None |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | None | $1-$10,000 | None | None | None |
First Trust Global Engineering and Construction ETF | None | None | None | None | $1–$10,000 |
First Trust BICK Index Fund | None | None | None | $1-$10,000 | None |
Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Trustee in the First Trust Fund Complex | Over $100,000 | Over $100,000 | Over $100,000 | Over $100,000 | Over $100,000 |
Expense Cap Funds | Annual Management Fee | Expense Cap |
Firs Trust Dow Jones Global Select Dividend Index Fund | 0.40% of average daily net assets | 0.60% of average daily net assets |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | 0.40% of average daily net assets | 0.60% of average daily net assets |
First Trust Global Engineering and Construction ETF | 0.40% of average daily net assets | 0.70% of average daily net assets |
First Trust Global Wind Energy ETF | 0.40% of average daily net assets | 0.60% of average daily net assets |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | 0.40% of average daily net assets | 0.70% of average daily net assets |
First Trust STOXX® European Select Dividend Index Fund | 0.40% of average daily net assets | 0.60% of average daily net assets |
Unitary Fee Fund | Annual Management Fee |
First Trust BICK Index Fund | 0.64% of average daily net assets |
First Trust Cloud Computing ETF | 0.60% of average daily net assets |
First Trust Indxx Global Agriculture ETF | 0.70% of average daily net assets |
First Trust Indxx Global Natural Resources Income ETF | 0.70% of average daily net assets |
First Trust International Equity Opportunities ETF | 0.70% of average daily net assets |
First Trust Nasdaq Cybersecurity ETF | 0.60% of average daily net assets |
First Trust Nasdaq Smartphone Index Fund | 0.70% of average daily net assets |
First Trust NASDAQ Global Auto Index Fund | 0.70% of average daily net assets |
Amount of Management Fees (Net of Fee Waivers and Expense Reimbursements by First Trust) | Amount of Fees Waived and Expenses Reimbursed By First Trust | |||||
Fund | Fiscal Year Ended September 30, | Fiscal Year Ended September 30, | ||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |
First Trust Dow Jones Global Select Dividend Index Fund | $1,993,748 | $1,556,630 | $1,425,591 | $0 | $0 | $0 |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | $71,359 | $186,280 | $246,995 | $117,546 | $60,987 | $102,416 |
First Trust Global Engineering and Construction ETF | $41,575 | $28,555 | $9,210 | $33,419 | $33,893 | $47,282 |
First Trust Global Wind Energy ETF | $295,252 | $237,892 | $141,614 | $71,385 | $93,898 | $74,347 |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | $118,602 | $53,113 | $3,825 | $13,940 | $28,627 | $42,554 |
First Trust STOXX® European Select Dividend Index Fund | $2,147,598 | $1,263,832 | $657,512 | $0 | $0 | $0 |
Amount of Unitary Fees | |||
Fund | Fiscal Year Ended September 30, | ||
2018 | 2017 | 2016 | |
First Trust BICK Index Fund | $1,458,551 | $434,250 | $48,300 |
First Trust Cloud Computing ETF | $9,050,487 | $4,681,433 | $3,159,617 |
First Trust Indxx Global Agriculture ETF | $46,449 | $41,663 | $30,986 |
First Trust Indxx Global Natural Resources Income ETF | $62,078 | $70,264 | $81,273 |
First Trust International Equity Opportunities ETF | $173,527 | $42,152 | $11,063 |
First Trust Nasdaq Cybersecurity ETF | $3,200,469 | $1,202,039 | $563,534 |
First Trust NASDAQ Global Auto Index Fund | $141,454 | $140,586 | $204,364 |
First Trust Nasdaq Smartphone Index Fund | $113,068 | $90,106 | $74,039 |
Name | Position with First Trust | Length of Service with First Trust | Principal Occupation During Past Five Years |
Daniel J. Lindquist | Chairman of the Investment Committee and Managing Director | Since 2004 | Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
David G. McGarel | Chief Operating Officer, Chief Investment Officer and Managing Director | Since 1997 | Chief Operating Officer (2016 to present), Chief Investment Officer and Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Jon C. Erickson | Senior Vice President | Since 1994 | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Roger F. Testin | Senior Vice President | Since 2001 | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Stan Ueland | Senior Vice President | Since 2005 | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Chris A. Peterson | Senior Vice President | Since 2000 | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Investment Committee Member | Registered Investment Companies Number of Accounts ($ Assets) | Other Pooled Investment Vehicles Number of Accounts ($ Assets) | Other Accounts Number of Accounts ($ Assets) |
Dan Lindquist | 95 ($48,986,499,069) | 34 ($1,231,725,115) | 1,668 ($574,461,478) |
David McGarel | 95 ($48,986,499,069) | 34 ($1,231,725,115) | 1,668 ($574,461,478) |
Jon Erickson | 95 ($48,986,499,069) | 34 ($1,231,725,115) | 1,668 ($574,461,478) |
Investment Committee Member | Registered Investment Companies Number of Accounts ($ Assets) | Other Pooled Investment Vehicles Number of Accounts ($ Assets) | Other Accounts Number of Accounts ($ Assets) |
Roger Testin | 95 ($48,986,499,069) | 34 ($1,231,725,115) | 1,668 ($574,461,478) |
Stan Ueland | 89 ($47,997,115,851) | 33 ($1,172,516,381) | N/A |
Chris Peterson | 95 ($48,986,499,069) | 14 ($903,607,976) | 1,668 ($574,461,478) |
Aggregate Amount of Brokerage Commissions | |||
Fund | Fiscal Year Ended September 30, | ||
2018 | 2017 | 2016 | |
First Trust BICK Index Fund | $274,576 | $254,432 | $9,480 |
First Trust Cloud Computing ETF | $51,859 | $49,971 | $126,088 |
First Trust Dow Jones Global Select Dividend Index Fund | $149,715 | $129,970 | $146,877 |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | $3,140 | $2,799 | $4,535 |
First Trust Global Engineering and Construction ETF | $3,190 | $3,379 | $4,594 |
First Trust Global Wind Energy ETF | $20,607 | $68,681 | $16,330 |
First Trust Indxx Global Agriculture ETF | $1,896 | $2,076 | $10,708 |
First Trust Indxx Global Natural Resources Income ETF | $5,257 | $7,100 | $29,992 |
First Trust International Equity Opportunities ETF | $18,844 | $4,712 | $1,274 |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | $19,474 | $8,854 | $4,950 |
First Trust Nasdaq Cybersecurity ETF | $190,839 | $89,398 | $37,416 |
First Trust NASDAQ Global Auto Index Fund | $3,421 | $5,077 | $6,980 |
First Trust Nasdaq Smartphone Index Fund | $14,887 | $3,441 | $4,207 |
First Trust STOXX® European Select Dividend Index Fund | $170,593 | $68,201 | $55,323 |
Index Providers and Exchanges
Fund Administration and Accounting | |||
Fund | Fiscal Year Ended September 30, | ||
2018 | 2017 | 2016 | |
First Trust Dow Jones Global Select Dividend Index Fund | $252,271 | $184,101 | $176,033 |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | $29,470 | $3,190 | $56,181 |
First Trust Global Engineering and Construction ETF | $11,612 | $1,557 | $11,458 |
First Trust Global Wind Energy ETF | $47,554 | $37,728 | $29,752 |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | $18,080 | $9,120 | $7,828 |
First Trust STOXX® European Select Dividend Index Fund | $270,503 | $154,772 | $81,762 |
Fund | Index Provider |
First Trust BICK Index Fund | Nasdaq, Inc. |
First Trust Cloud Computing ETF | Nasdaq, Inc. |
First Trust Dow Jones Global Select Dividend Index Fund | Dow Jones & Company, Inc. |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | FTSE International Limited |
First Trust Global Engineering and Construction ETF | Nasdaq, Inc. |
First Trust Global Wind Energy ETF | Nasdaq, Inc. |
First Trust Indxx Global Agriculture ETF | Indxx, LLC |
First Trust Indxx Global Natural Resources Income ETF | Indxx, LLC |
First Trust International Equity Opportunities ETF | IPOX® Schuster LLC |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | Nasdaq, Inc. |
First Trust Nasdaq Cybersecurity ETF | Nasdaq, Inc. |
First Trust NASDAQ Global Auto Index Fund | Nasdaq, Inc. |
First Trust Nasdaq Smartphone Index Fund | Nasdaq, Inc. |
First Trust STOXX European Select Dividend Index Fund | STOXX Limited |
First Trust Indxx Global Natural Resources Income ETF
First Trust Cloud Computing ETF
First Trust Global Engineering and Construction ETF
First Trust Global Wind Energy ETF
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund
First Trust Nasdaq Cybersecurity ETF
First Trust NASDAQ Global Auto Index Fund
First Trust Nasdaq Smartphone Index Fund
• | sponsor, endorse, sell or promote the First Trust STOXX® European Select Dividend Index Fund. |
• | recommend that any person invest in the First Trust STOXX® European Select Dividend Index Fund or any other securities. |
• | have any responsibility or liability for or make any decisions about the timing, amount or pricing of First Trust STOXX® European Select Dividend Index Fund. |
• | have any responsibility or liability for the administration, management or marketing of the First Trust STOXX® European Select Dividend Index Fund. |
• | consider the needs of the First Trust STOXX® European Select Dividend Index Fund or the owners of the First Trust STOXX® European Select Dividend Index Fund in determining, composing or calculating the STOXX® Europe Select Dividend 30 Index or have any obligation to do so. |
• | STOXX and its Licensors give no warranty, and exclude any liability (whether in negligence or otherwise), in connection with the First Trust STOXX® European Select Dividend Index Fund or their performance. |
• | STOXX does not assume any contractual relationship with the purchasers of the First Trust STOXX® European Select Dividend Index Fund or any other third parties. |
• | STOXX and its Licensors do not give any warranty, express or implied, and exclude any liability about: |
○ | The results to be obtained by the First Trust STOXX® European Select Dividend Index Fund, the owner of the First Trust STOXX® European Select Dividend Index Fund or any other person in connection with the use of the STOXX® Europe Select Dividend 30 Index and the data included in the STOXX® Europe Select Dividend 30 Index; |
○ | The accuracy, timeliness, and completeness of the STOXX® Europe Select Dividend 30 Index and its data; |
○ | The merchantability and the fitness for a particular purpose or use of the STOXX® Europe Select Dividend 30 Index and its data; |
○ | The performance of the First Trust STOXX® European Select Dividend Index Fund generally. |
• | STOXX and its Licensors give no warranty and exclude any liability, for any errors, omissions or interruptions in the STOXX® Europe Select Dividend 30 Index or its data; |
• | Under no circumstances will STOXX or its Licensors be liable (whether in negligence or otherwise) for any lost profits or indirect, punitive, special or consequential damages or losses, arising as a result of such errors, omissions or interruptions in the STOXX® Europe Select Dividend 30 Index or its data or generally in relation to the First Trust STOXX® European Select Dividend Index Fund, even in circumstances where STOXX or its Licensors are aware that such loss or damage may occur. |
(a) | otherwise than in conformity with the provisions of the European Communities (Markets in Financial Instruments) Regulations 2007 and the European Union (Alternative Investment Fund Managers) Regulations 2013, each as amended; or |
(b) | in any way which would require the publication of a prospectus under the Companies Act 2014 or any regulations made thereunder; or |
(c) | in Ireland except in all circumstances that will result in compliance with all applicable laws and regulations in Ireland. |
• | the percentage of each Fund’s assets, if any, that are subject to special arrangements arising from their illiquid nature (including, but not limited to, deferrals of redemptions and suspensions); |
• | the current risk profile of each Fund and the risk management systems employed by the AIFM to manage those risks; and |
• | the total amount of leverage employed by each Fund, if any. |
Argentina | Australia | Austria | Belgium | Brazil | Canada | Chile |
March 4 March 5 April 2 April 19 May 1 June 20 July 9 November 19 December 25 January 1 | April 22 April 25 June 10 December 25 December 26 January 1 January 28 | April 19 April 22 May 1 June 10 December 24 December 25 December 26 December 31 January 1 | April 19 April 22 May 1 December 25 December 26 January 1 | March 4 March 5 April 19 May 1 June 20 November 15 November 20 December 24 December 25 December 31 January 1 January 25 | February 18 April 19 May 20 July 1 August 5 September 2 October 14 December 25 December 26 January 1 | April 19 May 1 May 21 July 16 August 15 September 18 September 19 November 1 December 25 January 1 |
China | Denmark | Finland | France | Germany | Greece | Hong Kong |
February 4 February 5 February 6 February 7 February 8 April 5 May 1 June 7 September 13 October 1 October 2 October 3 October 4 October 7 January 1 | April 18 April 19 April 22 May 17 May 30 June 5 June 10 December 25 December 26 January 1 | April 19 April 22 May 1 May 30 June 22 November 2 December 6 December 25 December 26 January 1 January 6 | April 19 April 22 May 1 December 25 December 26 January 1 | April 19 April 21 May 1 June 10 October 3 December 25 December 26 January 1 | March 11 March 25 April 19 April 22 April 26 April 29 May 1 June 17 August 15 October 28 December 24 December 25 December 26 January 1 | February 5 February 6 February 7 April 5 April 19 April 22 May 1 May 13 June 7 July 1 October 1 October 7 December 25 December 26 January 1 |
India | Ireland | Israel | Italy | Japan | Malaysia | Mexico |
March 4 March 21 April 14 May 1 June 5 August 15 September 2 October 2 October 28 October 29 December 25 | March 17 April 22 May 6 June 3 August 5 October 28 December 25 December 26 January 1 | March 21 April 25 April 26 May 8 May 9 June 9 August 11 September 29 September 30 October 1 October 8 October 9 October 13 October 14 October 20 October 21 | April 19 April 22 May 1 August 15 December 24 December 25 December 26 December 31 January 1 | February 11 March 21 April 29 May 3 May 4 May 6 July 15 August 12 September 16 September 23 October 14 November 4 November 23 December 31 January 1 January 2 January 3 January 14 | February 1 February 4 February 5 February 6 May 1 May 20 May 22 May 30 May 31 June 4 June 5 June 6 August 12 September 2 September 9 September 16 October 28 November 10 December 25 January 1 January 21 | February 4 March 18 April 18 April 19 May 1 September 16 November 18 December 12 December 25 January 1 |
New Zealand | Netherlands | Norway | Portugal | Singapore | South Africa | South Korea |
February 6 April 19 April 22 April 25 June 3 October 28 December 25 December 26 January 1 January 2 | April 19 April 22 May 1 December 25 December 26 January 1 | April 17 April 18 April 19 April 22 May 1 May 17 May 30 June 10 December 24 December 25 December 26 December 31 January 1 | April 19 April 22 May 1 December 25 December 26 January 1 | February 4 February 5 February 6 April 19 May 1 May 20 June 5 August 9 August 12 October 28 December 24 December 25 December 31 January 1 | March 21 April 19 April 22 May 1 August 9 September 24 December 16 December 25 December 26 January 1 | February 4 February 5 February 6 March 1 May 1 May 6 June 6 August 15 September 12 September 13 October 3 October 9 December 25 December 31 January 1 |
Spain | Sweden | Switzerland | Taiwan | Thailand | United Kingdom | United States |
April 19 May 1 December 25 January 1 | April 19 April 22 May 1 May 30 June 6 December 24 December 25 December 26 December 31 January 1 | April 19 April 22 May 1 May 30 June 10 August 1 December 24 December 25 December 26 December 31 January 1 January 2 | February 4 February 5 February 6 February 7 February 8 February 28 April 4 April 5 May 1 June 7 September 13 October 10 January 1 | February 19 April 8 April 15 April 16 May 1 May 20 July 16 July 29 August 12 October 14 October 23 December 5 December 10 December 31 January 1 | April 19 April 22 May 6 May 27 August 26 December 24 December 25 December 26 January 1 | February 18 April 19 May 27 July 3 July 4 September 2 November 28 November 29 December 24 December 25 January 1 January 20 |
Fund | Capital Loss Available through | Post- Enactment No Expiration | Total Capital Loss Available |
9/30/2019 | |||
First Trust BICK Index Fund | $— | $11,451,439 | $11,451,439 |
First Trust Cloud Computing ETF | — | 5,702,175 | 5,702,175 |
First Trust Dow Jones Global Select Dividend Index Fund | 323,583 | 56,095,297 | 56,418,880 |
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund | 1,838 | 559,480 | 561,318 |
First Trust Global Engineering and Construction ETF | 615,538 | 6,626,704 | 7,242,242 |
First Trust Global Wind Energy ETF | 9,549,964 | 48,780,849 | 58,330,813 |
First Trust Indxx Global Natural Resources Income ETF | — | 61,284,474 | 61,284,474 |
First Trust Indxx Global Agriculture ETF | — | 19,010,611 | 19,010,611 |
First Trust International Equity Opportunities ETF | — | 1,775,031 | 1,775,031 |
First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund | — | 1,384,015 | 1,384,015 |
First Trust Nasdaq Cybersecurity ETF | — | 9,806,210 | 9,806,210 |
First Trust NASDAQ Global Auto Index Fund | — | 2,583,438 | 2,583,438 |
First Trust Nasdaq Smartphone Index Fund | — | 734,447 | 734,447 |
First Trust STOXX® European Select Dividend Index Fund | 161,155 | 12,644,433 | 12,805,588 |
(1) | Common stocks and other equity securities listed on any national or foreign exchange other than Nasdaq and the London Stock Exchange Alternative Investment Market (“AIM”) will be valued at the last sale price on the exchange on which they are principally traded, or the official closing price for Nasdaq and AIM securities. Portfolio securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, on the Business Day as of which such value is being determined at the close of the exchange representing the principal market for such securities. For securities traded on an exchange that provides both an official closing price and a last sale price, the Advisor's Pricing Committee, at its discretion, shall determine to use either the last sale price or the official closing price, depending on which price reflects the appropriate market value. |
(2) | Shares of open-end mutual funds are valued at fair value which is based on NAV per share. |
(3) | Securities traded in the OTC market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. |
(4) | Exchange traded options and futures contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, they will be fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. OTC options and futures contracts are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. |
(5) | Forward foreign currency contracts are fair valued at the current day’s interpolated foreign exchange rate, as calculated using the current day’s spot rate, and the 30, 60, 90 and 180-day forward rates provided by a pricing service or by certain independent dealers in such contracts. |
(1) | Fixed-income securities, convertible securities, interest rate swaps, credit default swaps, total return swaps, currency swaps, currency-linked notes, credit-linked notes and other similar instruments will be fair valued using a pricing service. |
(2) | Fixed income and other debt securities having a remaining maturity of 60 days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following: |
(i) | the credit conditions in the relevant market and changes thereto; |
(ii) | the liquidity conditions in the relevant market and changes thereto; |
(iii) | the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates); |
(iv) | issuer-specific conditions (such as significant credit deterioration); and |
(v) | any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost. |
(3) | Repurchase agreements will be valued as follows. Overnight repurchase agreements will be fair valued at amortized cost when it represents the best estimate of fair value. Term repurchase agreements (i.e., those whose maturity exceeds seven days) will be fair valued by the Advisor’s Pricing Committee at the average of the bid quotations obtained daily from at least two recognized dealers. |
NAME OF BENEFICIAL OWNER | % OF OUTSTANDING SHARES OWNED |
FIRST TRUST BICK INDEX FUND | |
Brown Brothers Harriman & Co./ETF | 68.96% |
J.P. Morgan Securities LLC/JPMC | 5.46% |
FIRST TRUST CLOUD COMPUTING ETF | |
Merrill Lynch, Pierce, Fenner & Smith Safekeeping | 35.98% |
Charles Schwab & Co., Inc. | 8.36% |
National Financial Services LLC | 6.04% |
Morgan Stanley Smith Barney LLC | 5.25% |
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND | |
Wells Fargo Clearing Services, LLC | 17.85% |
Morgan Stanley Smith Barney LLC | 12.68% |
National Financial Services LLC | 10.78% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF | 7.73% |
UBS Financial Services Inc. | 6.99% |
Charles Schwab & Co., Inc. | 5.30% |
TD Ameritrade Clearing, Inc. | 5.29% |
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND | |
Morgan Stanley Smith Barney LLC | 17.57% |
Charles Schwab & Co., Inc. | 13.38% |
Raymond James & Associates, Inc. | 13.22% |
Wells Fargo Clearing Services, LLC | 13.13% |
American Enterprise Investment Services Inc. | 8.27% |
UBS Financial Services Inc. | 5.04% |
FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF | |
J.P. Morgan Securities LLC/JPMC | 16.73% |
National Financial Services LLC | 13.43% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated | 8.90% |
Charles Schwab & Co., Inc. | 7.10% |
UBS Financial Services Inc. | 5.78% |
Morgan Stanley Smith Barney LLC | 5.76% |
Raymond James & Associates, Inc. | 5.55% |
FIRST TRUST GLOBAL WIND ENERGY ETF | |
Charles Schwab & Co., Inc. | 12.82% |
National Financial Services LLC | 10.23% |
Wells Fargo Clearing Services, LLC | 8.34% |
Pershing LLC | 7.58% |
Morgan Stanley Smith Barney LLC | 7.48% |
TD Ameritrade Clearing, Inc. | 6.14% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF | 5.74% |
American Enterprise Investment Services Inc. | 5.15% |
NAME OF BENEFICIAL OWNER | % OF OUTSTANDING SHARES OWNED |
FIRST TRUST INDXX GLOBAL AGRICULTURE ETF | |
J.P. Morgan Securities LLC/JPMC | 20.37% |
TD Ameritrade Clearing, Inc. | 17.95% |
Citibank, N.A. | 12.47% |
National Financial Services LLC | 10.08% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated | 5.38% |
Pershing LLC | 5.36% |
FIRST TRUST INDXX GLOBAL NATURAL RESOURCES INCOME ETF | |
National Financial Services LLC | 23.20% |
Pershing LLC | 9.33% |
Charles Schwab & Co., Inc. | 8.66% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF | 8.50% |
TD Ameritrade Clearing, Inc. | 8.27% |
J.P. Morgan Securities LLC/JPMC | 5.54% |
FIRST TRUST INTERNATIONAL EQUITY OPPORTUNITIES ETF | |
TD Ameritrade Clearing, Inc. | 33.30% |
LPL Financial Corporation | 18.46% |
Credit Suisse Securities (USA) LLC | 7.37% |
FIRST TRUST NASDAQ® CLEAN EDGE® SMART GRID INFRASTRUCTURE INDEX FUND | |
National Financial Services LLC | 14.06% |
Morgan Stanley Smith Barney LLC | 10.70% |
Charles Schwab & Co., Inc. | 10.55% |
TD Ameritrade Clearing, Inc. | 9.75% |
UBS Financial Services Inc. | 7.37% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF | 7.12% |
Pershing LLC | 6.95% |
FIRST TRUST NASDAQ CYBERSECURITY ETF | |
Morgan Stanley Smith Barney LLC | 26.35% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF | 15.29% |
National Financial Services LLC | 7.41% |
Charles Schwab & Co., Inc. | 5.73% |
The Northern Trust Company | 5.32% |
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND | |
National Financial Services LLC | 34.70% |
Morgan Stanley Smith Barney LLC | 15.46% |
Pershing LLC | 5.88% |
Charles Schwab & Co., Inc. | 5.77% |
FIRST TRUST NASDAQ SMARTPHONE INDEX FUND | |
J.P. Morgan Securities LLC/JPMC | 15.76% |
Charles Schwab & Co., Inc. | 15.53% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated | 12.74% |
National Financial Services LLC | 11.69% |
TD Ameritrade Clearing, Inc. | 10.10% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF | 5.15% |
NAME OF BENEFICIAL OWNER | % OF OUTSTANDING SHARES OWNED |
FIRST TRUST STOXX® EUROPEAN SELECT DIVIDEND INDEX FUND | |
Morgan Stanley Smith Barney LLC | 20.27% |
UBS Financial Services Inc. | 13.41% |
National Financial Services LLC | 11.99% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF | 7.75% |
Wells Fargo Clearing Services, LLC | 7.12% |
(1) | American Enterprise Investment Services Inc.: 901 3RD Avenue South, Minneapolis, Minnesota 55474 |
(2) | Brown Brothers Harriman & Co./ETF: 525 Washington Blvd., Jersey City, New Jersey 07310 |
(3) | Charles Schwab & Co., Inc.: 2423 E Lincoln Drive, Phoenix, Arizona 85016 |
(4) | Citibank, N.A.: 3801 Citibank Center, B/3Rd Floor/Zone 12, Tampa, Florida 33610 |
(5) | Credit Suisse Securities (USA) LLC: 7033 Louis Stevens Drive, Global Proxy Services, Research Triangle Park, North Carolina 27560 |
(6) | J.P. Morgan Securities LLC/JPMC: 500 Stanton Christiana Road, OPS 4, Newark, Delaware 19713 |
(7) | LPL Financial Corporation: 9785 Towne Centre Drive ,San Diego, California 92121 |
(8) | Merrill Lynch, Pierce, Fenner & Smith Incorporated: 4804 Deer Lake Dr E, Jacksonville, Florida 32246 |
(9) | Merrill Lynch, Pierce, Fenner & Smith Incorporated/8862 MLPF: 4804 Deer Lake Dr E, Jacksonville, Florida 32246 |
(10) | Morgan Stanley Smith Barney LLC: 1300 Thames St 6th Floor, Baltimore, Maryland 21231 |
(11) | National Financial Services LLC: 499 Washington Boulevard, Jersey City, New Jersey 07310 |
(12) | Pershing LLC: One Pershing Plaza, Jersey City, New Jersey 07399 |
(13) | Raymond James & Associates, Inc.: 880 Carillon Parkway, St. Petersburg, Florida 33716 |
(14) | TD Ameritrade Clearing, Inc.: 200 S. 108th Ave., Omaha, Nebraska 68154 |
(15) | The Northern Trust Company: 801 S Canal Street, Chicago, Illinois 60607 |
(16) | UBS Financial Services Inc.: 1000 Harbor Blvd, Weehawken, New Jersey 07086 |
(17) | Wells Fargo Clearing Services, LLC: 2801 Market Street H0006-09B, St. Louis, Missouri 63103 |
Published December 18, 2018
and are not intended to be exhaustive. The complete guidelines can be found at:
https://www.issgovernance.com/policy-gateway/voting-policies/
➤ | General Recommendation: Generally vote for director nominees, except under the following circumstances: |
➤ | Independent directors comprise 50 percent or less of the board; |
➤ | The non-independent director serves on the audit, compensation, or nominating committee; |
➤ | The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee; or |
➤ | The company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the functions of such a committee. |
➤ | Medical issues/illness; |
➤ | Family emergencies; and |
➤ | Missing only one meeting (when the total of all meetings is three or fewer). |
➤ | If the proxy disclosure is unclear and insufficient to determine whether a director attended at least 75 percent of the aggregate of his/her board and committee meetings during his/her period of service, vote against or withhold from the director(s) in question. |
1 | In general, companies with a plurality vote standard use “Withhold” as the contrary vote option in director elections; companies with a majority vote standard use “Against”. However, it will vary by company and the proxy must be checked to determine the valid contrary vote option for the particular company. |
2 | New nominees who served for only part of the fiscal year are generally exempted from the attendance policy. |
➤ | Sit on more than five public company boards; or |
➤ | Are CEOs of public companies who sit on the boards of more than two public companies besides their own— withhold only at their outside boards3. |
➤ | A firm commitment, as stated in the proxy statement, to appoint at least one female to the board in the near term; |
➤ | The presence of a female on the board at the preceding annual meeting; or |
➤ | Other relevant factors as applicable. |
➤ | The board failed to act on a shareholder proposal that received the support of a majority of the shares cast in the previous year or failed to act on a management proposal seeking to ratify an existing charter/bylaw provision that received opposition of a majority of the shares cast in the previous year. Factors that will be considered are: |
➤ | Disclosed outreach efforts by the board to shareholders in the wake of the vote; |
➤ | Rationale provided in the proxy statement for the level of implementation; |
➤ | The subject matter of the proposal; |
➤ | The level of support for and opposition to the resolution in past meetings; |
➤ | Actions taken by the board in response to the majority vote and its engagement with shareholders; |
➤ | The continuation of the underlying issue as a voting item on the ballot (as either shareholder or management proposals); and |
➤ | Other factors as appropriate. |
➤ | The board failed to act on takeover offers where the majority of shares are tendered; |
➤ | At the previous board election, any director received more than 50 percent withhold/against votes of the shares cast and the company has failed to address the issue(s) that caused the high withhold/against vote. |
➤ | The company’s previous say-on-pay received the support of less than 70 percent of votes cast. Factors that will be considered are: |
➤ | The company's response, including: |
➤ | Disclosure of engagement efforts with major institutional investors, including the frequency and timing of engagements and the company participants (including whether independent directors participated); |
➤ | Disclosure of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition; |
➤ | Disclosure of specific and meaningful actions taken to address shareholders' concerns; |
➤ | Other recent compensation actions taken by the company; |
➤ | Whether the issues raised are recurring or isolated; |
➤ | The company's ownership structure; and |
3 | Although all of a CEO’s subsidiary boards with publicly-traded common stock will be counted as separate boards, ISS will not recommend a withhold vote for the CEO of a parent company board or any of the controlled (>50 percent ownership) subsidiaries of that parent but may do so at subsidiaries that are less than 50 percent controlled and boards outside the parent/subsidiary relationships. |
➤ | Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness. |
➤ | The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the plurality of votes cast. |
➤ | The company has a poison pill that was not approved by shareholders5. However, vote case-by-case on nominees if the board adopts an initial pill with a term of one year or less, depending on the disclosed rationale for the adoption, and other factors as relevant (such as a commitment to put any renewal to a shareholder vote). |
➤ | The board makes a material adverse modification to an existing pill, including, but not limited to, extension, renewal, or lowering the trigger, without shareholder approval. |
➤ | A classified board structure; |
➤ | A supermajority vote requirement; |
➤ | Either a plurality vote standard in uncontested director elections, or a majority vote standard in contested elections; |
➤ | The inability of shareholders to call special meetings; |
➤ | The inability of shareholders to act by written consent; |
➤ | A multi-class capital structure; and/or |
➤ | A non-shareholder-approved poison pill. |
➤ | The board's rationale for adopting the bylaw/charter amendment without shareholder ratification; |
4 | A “new nominee” is any current nominee who has not already been elected by shareholders and who joined the board after the problematic action in question transpired. If ISS cannot determine whether the nominee joined the board before or after the problematic action transpired, the nominee will be considered a “new nominee” if he or she joined the board within the 12 months prior to the upcoming shareholder meeting. |
5 | Public shareholders only, approval prior to a company’s becoming public is insufficient. |
➤ | Disclosure by the company of any significant engagement with shareholders regarding the amendment; |
➤ | The level of impairment of shareholders' rights caused by the board's unilateral amendment to the bylaws/charter; |
➤ | The board's track record with regard to unilateral board action on bylaw/charter amendments or other entrenchment provisions; |
➤ | The company's ownership structure; |
➤ | The company's existing governance provisions; |
➤ | The timing of the board's amendment to the bylaws/charter in connection with a significant business development; and, |
➤ | Other factors, as deemed appropriate, that may be relevant to determine the impact of the amendment on shareholders. |
➤ | Classified the board; |
➤ | Adopted supermajority vote requirements to amend the bylaws or charter; or |
➤ | Eliminated shareholders' ability to amend bylaws. |
➤ | The level of impairment of shareholders' rights; |
➤ | The disclosed rationale; |
➤ | The ability to change the governance structure (e.g., limitations on shareholders’ right to amend the bylaws or charter, or supermajority vote requirements to amend the bylaws or charter); |
➤ | The ability of shareholders to hold directors accountable through annual director elections, or whether the company has a classified board structure; |
➤ | Any reasonable sunset provision; and |
➤ | Other relevant factors. |
➤ | The presence of a shareholder proposal addressing the same issue on the same ballot; |
➤ | The board's rationale for seeking ratification; |
➤ | Disclosure of actions to be taken by the board should the ratification proposal fail; |
➤ | Disclosure of shareholder engagement regarding the board’s ratification request; |
➤ | The level of impairment to shareholders' rights caused by the existing provision; |
➤ | The history of management and shareholder proposals on the provision at the company’s past meetings; |
➤ | Whether the current provision was adopted in response to the shareholder proposal; |
➤ | The company's ownership structure; and |
➤ | Previous use of ratification proposals to exclude shareholder proposals. |
➤ | The company’s governing documents impose undue restrictions on shareholders’ ability to amend the bylaws. Such restrictions include but are not limited to: outright prohibition on the submission of binding shareholder proposals or share ownership requirements or time holding requirements in excess of SEC Rule 14a-8. Vote against on an ongoing basis. |
➤ | The non-audit fees paid to the auditor are excessive; |
➤ | The company receives an adverse opinion on the company’s financial statements from its auditor; or |
➤ | There is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm. |
➤ | Poor accounting practices are identified that rise to a level of serious concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in Section 404 disclosures. Examine the severity, breadth, chronological sequence, and duration, as well as the company’s efforts at remediation or corrective actions, in determining whether withhold/against votes are warranted. |
➤ | There is an unmitigated misalignment between CEO pay and company performance (pay for performance) (see Primary Evaluation Factors for Executive Pay); |
➤ | The company maintains significant problematic pay practices (see Problematic Pay Practices); or |
➤ | The board exhibits a significant level of poor communication and responsiveness (see Compensation Committee Communications and Responsiveness) to shareholders. |
➤ | The company fails to include a Say on Pay ballot item when required under SEC provisions, or under the company’s declared frequency of say on pay; or |
➤ | The company fails to include a Frequency of Say on Pay ballot item when required under SEC provisions. |
➤ | The presence of an anti-pledging policy, disclosed in the proxy statement, that prohibits future pledging activity; |
➤ | The magnitude of aggregate pledged shares in terms of total common shares outstanding, market value, and trading volume; |
➤ | Disclosure of progress or lack thereof in reducing the magnitude of aggregate pledged shares over time; |
➤ | Disclosure in the proxy statement that shares subject to stock ownership and holding requirements do not include pledged company stock; and |
➤ | Any other relevant factors. |
➤ | Material failures of governance, stewardship, risk oversight6, or fiduciary responsibilities at the company; |
➤ | Failure to replace management as appropriate; or |
➤ | Egregious actions related to a director’s service on other boards that raise substantial doubt about his or her ability to effectively oversee management and serve the best interests of shareholders at any company. |
➤ | General Recommendation: In cases where companies are targeted in connection with public “vote-no” campaigns, evaluate director nominees under the existing governance policies for voting on director nominees in uncontested elections. Take into consideration the arguments submitted by shareholders and other publicly available information. |
➤ | General Recommendation: Vote case-by-case on the election of directors in contested elections, considering the following factors: |
➤ | Long-term financial performance of the company relative to its industry; |
➤ | Management’s track record; |
➤ | Background to the contested election; |
➤ | Nominee qualifications and any compensatory arrangements; |
➤ | Strategic plan of dissident slate and quality of the critique against management; |
➤ | Likelihood that the proposed goals and objectives can be achieved (both slates); and |
➤ | Stock ownership positions. |
6 | Examples of failure of risk oversight include but are not limited to: bribery; large or serial fines or sanctions from regulatory bodies; significant adverse legal judgments or settlement; or hedging of company stock. |
➤ | General Recommendation: Generally vote for shareholder proposals requiring that the chairman’s position be filled by an independent director, taking into consideration the following: |
➤ | The scope of the proposal; |
➤ | The company's current board leadership structure; |
➤ | The company's governance structure and practices; |
➤ | Company performance; and |
➤ | Any other relevant factors that may be applicable. |
➤ | General Recommendation: Generally vote for management and shareholder proposals for proxy access with the following provisions: |
➤ | Ownership threshold: maximum requirement not more than three percent (3%) of the voting power; |
➤ | Ownership duration: maximum requirement not longer than three (3) years of continuous ownership for each member of the nominating group; |
➤ | Aggregation: minimal or no limits on the number of shareholders permitted to form a nominating group; |
➤ | Cap: cap on nominees of generally twenty-five percent (25%) of the board. |
➤ | General Recommendation: Generally vote against management proposals to ratify provisions of the company’s existing charter or bylaws, unless these governance provisions align with best practice. |
➤ | The presence of a shareholder proposal addressing the same issue on the same ballot; |
➤ | The board's rationale for seeking ratification; |
➤ | Disclosure of actions to be taken by the board should the ratification proposal fail; |
➤ | Disclosure of shareholder engagement regarding the board’s ratification request; |
➤ | The level of impairment to shareholders' rights caused by the existing provision; |
➤ | The history of management and shareholder proposals on the provision at the company’s past meetings; |
➤ | Whether the current provision was adopted in response to the shareholder proposal; |
➤ | The company's ownership structure; and |
➤ | Previous use of ratification proposals to exclude shareholder proposals. |
➤ | General Recommendation: Vote for proposals to increase the number of authorized common shares where the primary purpose of the increase is to issue shares in connection with a transaction on the same ballot that warrants support. |
➤ | Past Board Performance: |
➤ | The company's use of authorized shares during the last three years |
➤ | The Current Request: |
➤ | Disclosure in the proxy statement of the specific purposes of the proposed increase; |
➤ | Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request; and |
➤ | The dilutive impact of the request as determined relative to an allowable increase calculated by ISS (typically 100 percent of existing authorized shares) that reflects the company's need for shares and total shareholder returns. |
A. | Most companies: 100 percent of existing authorized shares. |
B. | Companies with less than 50 percent of existing authorized shares either outstanding or reserved for issuance: 50 percent of existing authorized shares. |
C. | Companies with one- and three-year total shareholder returns (TSRs) in the bottom 10 percent of the U.S. market as of the end of the calendar quarter that is closest to their most recent fiscal year end: 50 percent of existing authorized shares. |
D. | Companies at which both conditions (B and C) above are both present: 25 percent of existing authorized shares. |
➤ | General Recommendation: Vote case-by-case on mergers and acquisitions. Review and evaluate the merits and drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including: |
➤ | Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness opinion may provide an initial starting point for assessing valuation reasonableness, emphasis is placed on the offer premium, market reaction, and strategic rationale. |
➤ | Market reaction - How has the market responded to the proposed deal? A negative market reaction should cause closer scrutiny of a deal. |
➤ | Strategic rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies should not be overly aggressive or optimistic, but reasonably achievable. Management should also have a favorable track record of successful integration of historical acquisitions. |
➤ | Negotiations and process - Were the terms of the transaction negotiated at arm's-length? Was the process fair and equitable? A fair process helps to ensure the best price for shareholders. Significant negotiation "wins" can also signify the deal makers' competency. The comprehensiveness of the sales process (e.g., full auction, partial auction, no auction) can also affect shareholder value. |
➤ | Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? As the result of potential conflicts, the directors and officers of the company may be more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests may have influenced these directors and officers to support or recommend the merger. The CIC figure presented in the "ISS Transaction Summary" section of this report is an aggregate figure that can in certain cases be a misleading indicator of the true value transfer from shareholders to insiders. Where such figure appears to be excessive, analyze the underlying assumptions to determine whether a potential conflict exists. |
➤ | Governance - Will the combined company have a better or worse governance profile than the current governance profiles of the respective parties to the transaction? If the governance profile is to change for the worse, the burden is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance. |
1. | Maintain appropriate pay-for-performance alignment, with emphasis on long-term shareholder value: This principle encompasses overall executive pay practices, which must be designed to attract, retain, and appropriately motivate the key employees who drive shareholder value creation over the long term. It will take into consideration, among other factors, the link between pay and performance; the mix between fixed and variable pay; performance goals; and equity-based plan costs; |
2. | Avoid arrangements that risk “pay for failure”: This principle addresses the appropriateness of long or indefinite contracts, excessive severance packages, and guaranteed compensation; |
3. | Maintain an independent and effective compensation committee: This principle promotes oversight of executive pay programs by directors with appropriate skills, knowledge, experience, and a sound process for compensation decision-making (e.g., including access to independent expertise and advice when needed); |
4. | Provide shareholders with clear, comprehensive compensation disclosures: This principle underscores the importance of informative and timely disclosures that enable shareholders to evaluate executive pay practices fully and fairly; |
5. | Avoid inappropriate pay to non-executive directors: This principle recognizes the interests of shareholders in ensuring that compensation to outside directors is reasonable and does not compromise their independence and ability to make appropriate judgments in overseeing managers’ pay and performance. At the market level, it may incorporate a variety of generally accepted best practices. |
➤ | General Recommendation: Vote case-by-case on ballot items related to executive pay and practices, as well as certain aspects of outside director compensation. |
Vote against Advisory Votes on Executive Compensation (Say-on-Pay or “SOP”) if: |
➤ | There is an unmitigated misalignment between CEO pay and company performance (pay for performance) (see Primary Evaluation Factors for Executive Pay); |
➤ | The company maintains significant problematic pay practices (see Problematic Pay Practices); |
➤ | The board exhibits a significant level of poor communication and responsiveness (see Compensation Committee Communications and Responsiveness) to shareholders. |
➤ | There is no SOP on the ballot, and an against vote on an SOP is warranted due to pay-for-performance misalignment, problematic pay practices, or the lack of adequate responsiveness on compensation issues raised previously, or a combination thereof; |
➤ | The board fails to respond adequately to a previous SOP proposal that received less than 70 percent support of votes cast; |
➤ | The company has recently practiced or approved problematic pay practices, such as option repricing or option backdating; or |
➤ | The situation is egregious. |
1. | Peer Group8 Alignment: |
➤ | The degree of alignment between the company's annualized TSR rank and the CEO's annualized total pay rank within a peer group, each measured over a three-year period. |
➤ | The rankings of CEO total pay and company financial performance within a peer group, each measured over a three-year period. |
➤ | The multiple of the CEO's total pay relative to the peer group median in the most recent fiscal year. |
2. | Absolute Alignment9– the absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years –i.e., the difference between the trend in annual pay changes and the trend in annualized TSR during the period. |
➤ | The ratio of performance- to time-based incentive awards; |
➤ | The overall ratio of performance-based compensation; |
➤ | The completeness of disclosure and rigor of performance goals; |
➤ | The company's peer group benchmarking practices; |
➤ | Actual results of financial/operational metrics, both absolute and relative to peers; |
➤ | Special circumstances related to, for example, a new CEO in the prior FY or anomalous equity grant practices (e.g., bi-annual awards); |
➤ | Realizable pay10 compared to grant pay; and |
➤ | Any other factors deemed relevant. |
➤ | Problematic practices related to non-performance-based compensation elements; |
➤ | Incentives that may motivate excessive risk-taking or present a windfall risk; and |
➤ | Pay decisions that circumvent pay-for-performance, such as options backdating or waiving performance requirements. |
7 | The Russell 3000E Index includes approximately 4,000 of the largest U.S. equity securities. |
8 | The revised peer group is generally comprised of 14-24 companies that are selected using market cap, revenue (or assets for certain financial firms), GICS industry group, and company's selected peers' GICS industry group, with size constraints, via a process designed to select peers that are comparable to the subject company in terms of revenue/assets and industry, and also within a market-cap bucket that is reflective of the company's. For Oil, Gas & Consumable Fuels companies, market cap is the only size determinant. |
9 | Only Russell 3000 Index companies are subject to the Absolute Alignment analysis. |
10 | ISS research reports include realizable pay for S&P1500 companies. |
➤ | Repricing or replacing of underwater stock options/SARS without prior shareholder approval (including cash buyouts and voluntary surrender of underwater options); |
➤ | Extraordinary perquisites or tax gross-ups; |
➤ | New or materially amended agreements that provide for: |
➤ | Excessive termination or CIC severance payments (generally exceeding 3 times base salary and average/target/most recent bonus); |
➤ | CIC severance payments without involuntary job loss or substantial diminution of duties ("single" or "modified single" triggers) or in connection with a problematic Good Reason definition; |
➤ | CIC excise tax gross-up entitlements (including "modified" gross-ups); |
➤ | Multi-year guaranteed awards that are not at risk due to rigorous performance conditions; |
➤ | Liberal CIC definition combined with any single-trigger CIC benefits; |
➤ | Insufficient executive compensation disclosure by externally-managed issuers (EMIs) such that a reasonable assessment of pay programs and practices applicable to the EMI's executives is not possible; |
➤ | Any other provision or practice deemed to be egregious and present a significant risk to investors. |
➤ | Failure to respond to majority-supported shareholder proposals on executive pay topics; or |
➤ | Failure to adequately respond to the company's previous say-on-pay proposal that received the support of less than 70 percent of votes cast, taking into account: |
➤ | The company's response, including: |
➤ | Disclosure of engagement efforts with major institutional investors, including the frequency and timing of engagements and the company participants (including whether independent directors participated); |
➤ | Disclosure of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition; |
➤ | Disclosure of specific and meaningful actions taken to address shareholders’ concerns; |
➤ | Other recent compensation actions taken by the company; |
➤ | Whether the issues raised are recurring or isolated; |
➤ | The company's ownership structure; and |
➤ | Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness. |
➤ | General Recommendation: Vote case-by-case on certain equity-based compensation plans depending on a combination of certain plan features and equity grant practices, where positive factors may counterbalance negative factors, and vice versa, as evaluated using an "Equity Plan Scorecard" (EPSC) approach with three pillars: |
➤ | Plan Cost: The total estimated cost of the company’s equity plans relative to industry/market cap peers, measured by the company's estimated Shareholder Value Transfer (SVT) in relation to peers and considering both: |
➤ | SVT based on new shares requested plus shares remaining for future grants, plus outstanding unvested/unexercised grants; and |
➤ | SVT based only on new shares requested plus shares remaining for future grants. |
➤ | Plan Features: |
➤ | Quality of disclosure around vesting upon a change in control (CIC); |
➤ | Discretionary vesting authority; |
➤ | Liberal share recycling on various award types; |
➤ | Lack of minimum vesting period for grants made under the plan; |
➤ | Dividends payable prior to award vesting. |
➤ | Grant Practices: |
➤ | The company’s three-year burn rate relative to its industry/market cap peers; |
➤ | Vesting requirements in CEO's recent equity grants (3-year look-back); |
➤ | The estimated duration of the plan (based on the sum of shares remaining available and the new shares requested, divided by the average annual shares granted in the prior three years); |
➤ | The proportion of the CEO's most recent equity grants/awards subject to performance conditions; |
➤ | Whether the company maintains a sufficient claw-back policy; |
➤ | Whether the company maintains sufficient post-exercise/vesting share-holding requirements. |
➤ | Awards may vest in connection with a liberal change-of-control definition; |
➤ | The plan would permit repricing or cash buyout of underwater options without shareholder approval (either by expressly permitting it—for NYSE and Nasdaq listed companies—or by not prohibiting it when the company has a history of repricing—for non-listed companies); |
➤ | The plan is a vehicle for problematic pay practices or a significant pay-for-performance disconnect under certain circumstances; |
➤ | The plan is excessively dilutive to shareholders' holdings; or |
➤ | Any other plan features are determined to have a significant negative impact on shareholder interests. |
11 | Proposals evaluated under the EPSC policy generally include those to approve or amend (1) stock option plans for employees and/or employees and directors, (2) restricted stock plans for employees and/or employees and directors, and (3) omnibus stock incentive plans for employees and/or employees and directors; amended plans will be further evaluated case-by-case. |
➤ | General Recommendation: Generally vote case-by-case, examining primarily whether implementation of the proposal is likely to enhance or protect shareholder value. The following factors will be considered: |
➤ | If the issues presented in the proposal are more appropriately or effectively dealt with through legislation or government regulation; |
➤ | If the company has already responded in an appropriate and sufficient manner to the issue(s) raised in the proposal; |
➤ | Whether the proposal's request is unduly burdensome (scope or timeframe) or overly prescriptive; |
➤ | The company's approach compared with any industry standard practices for addressing the issue(s) raised by the proposal; |
➤ | Whether there are significant controversies, fines, penalties, or litigation associated with the company's environmental or social practices; |
➤ | If the proposal requests increased disclosure or greater transparency, whether reasonable and sufficient information is currently available to shareholders from the company or from other publicly available sources; and |
➤ | If the proposal requests increased disclosure or greater transparency, whether implementation would reveal proprietary or confidential information that could place the company at a competitive disadvantage. |
➤ | General Recommendation: Generally vote for resolutions requesting that a company disclose information on the financial, physical, or regulatory risks it faces related to climate change on its operations and investments or on how the company identifies, measures, and manages such risks, considering: |
➤ | Whether the company already provides current, publicly-available information on the impact that climate change may have on the company as well as associated company policies and procedures to address related risks and/or opportunities; |
➤ | The company’s level of disclosure compared to industry peers; and |
➤ | Whether there are significant controversies, fines, penalties, or litigation associated with the company’s climate change-related performance. |
➤ | The company already discloses current, publicly-available information on the impacts that GHG emissions may have on the company as well as associated company policies and procedures to address related risks and/or opportunities; |
➤ | The company's level of disclosure is comparable to that of industry peers; and |
➤ | There are no significant, controversies, fines, penalties, or litigation associated with the company's GHG emissions. |
➤ | Whether the company provides disclosure of year-over-year GHG emissions performance data; |
➤ | Whether company disclosure lags behind industry peers; |
➤ | The company's actual GHG emissions performance; |
➤ | The company's current GHG emission policies, oversight mechanisms, and related initiatives; and |
➤ | Whether the company has been the subject of recent, significant violations, fines, litigation, or controversy related to GHG emissions. |
➤ | General Recommendation: Generally vote for requests for reports on a company's efforts to diversify the board, unless: |
➤ | The gender and racial minority representation of the company’s board is reasonably inclusive in relation to companies of similar size and business; and |
➤ | The board already reports on its nominating procedures and gender and racial minority initiatives on the board and within the company. |
➤ | The degree of existing gender and racial minority diversity on the company’s board and among its executive officers; |
➤ | The level of gender and racial minority representation that exists at the company’s industry peers; |
➤ | The company’s established process for addressing gender and racial minority board representation; |
➤ | Whether the proposal includes an overly prescriptive request to amend nominating committee charter language; |
➤ | The independence of the company’s nominating committee; |
➤ | Whether the company uses an outside search firm to identify potential director nominees; and |
➤ | Whether the company has had recent controversies, fines, or litigation regarding equal employment practices. |
➤ | General Recommendation: Generally vote case-by-case on requests for reports on a company's pay data by gender, or a report on a company’s policies and goals to reduce any gender pay gap, taking into account: |
➤ | The company's current policies and disclosure related to both its diversity and inclusion policies and practices and its compensation philosophy and fair and equitable compensation practices; |
➤ | Whether the company has been the subject of recent controversy, litigation, or regulatory actions related to gender pay gap issues; and |
➤ | Whether the company's reporting regarding gender pay gap policies or initiatives is lagging its peers. |
➤ | How the company's recycling programs compare to similar programs of its industry peers. |
➤ | General Recommendation: Generally vote for proposals requesting that a company report on its policies, initiatives, and oversight mechanisms related to social, economic, and environmental sustainability, unless: |
➤ | The company already discloses similar information through existing reports or policies such as an environment, health, and safety (EHS) report; a comprehensive code of corporate conduct; and/or a diversity report; or |
➤ | The company has formally committed to the implementation of a reporting program based on Global Reporting Initiative (GRI) guidelines or a similar standard within a specified time frame. |
➤ | General Recommendation: Vote case-by-case on proposals requesting information on a company’s lobbying (including direct, indirect, and grassroots lobbying) activities, policies, or procedures, considering: |
➤ | The company’s current disclosure of relevant lobbying policies, and management and board oversight; |
➤ | The company’s disclosure regarding trade associations or other groups that it supports, or is a member of, that engage in lobbying activities; and |
➤ | Recent significant controversies, fines, or litigation regarding the company’s lobbying-related activities. |
➤ | General Recommendation: Generally vote for proposals requesting greater disclosure of a company's political contributions and trade association spending policies and activities, considering: |
➤ | The company's policies, and management and board oversight related to its direct political contributions and payments to trade associations or other groups that may be used for political purposes; |
➤ | The company's disclosure regarding its support of, and participation in, trade associations or other groups that may make political contributions; and |
➤ | Recent significant controversies, fines, or litigation related to the company's political contributions or political activities. |
First Trust Exchange-Traded Fund IV
(the “Trust”)
First Trust Heitman Global Prime Real Estate ETF
(the “Fund”)
Supplement To the Prospectus and Statement of Additional Information
Dated March 1, 2019
Dated March 13, 2019
The Board of Trustees of First Trust Exchange-Traded Fund IV (the “Trust”) has approved a transaction to combine the Fund with First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (“FFR”), an exchange-traded index fund that seeks investment results that correspond generally to the price and yield (before fees and expenses) of an equity index called the FTSE EPRA/NAREIT Developed Index. Pursuant to this transaction, Fund shareholders will become shareholders of FFR.
In order for the transaction to occur, the shareholders of the Fund must approve the transaction. If approved, shares of the Fund would be exchanged, on a tax-free basis for federal income tax purposes, for shares of FFR with an equal aggregate net asset value, and Fund shareholders will become shareholders of FFR.
A special meeting of shareholders of the Fund for the purpose of voting on the transaction will be held. If the required approval is obtained, it is anticipated that the transaction will be consummated shortly after the special shareholder meeting.
The Fund will continue sales and redemptions of shares as described in the Fund’s prospectus. Holders of shares of the Fund purchased after the record date set for the special meeting of shareholders will not be entitled to vote those shares at the special meeting.
Please Keep this Supplement with Your Fund Prospectus and
Statement of Additional Information for Future Reference
FUND NAME | TICKER SYMBOL | EXCHANGE | ||
First Trust Heitman Global Prime Real Estate ETF | PRME | NYSE Arca |
1 | |
3 | |
3 | |
4 | |
9 | |
13 | |
20 | |
22 | |
23 | |
25 | |
26 | |
28 | |
29 | |
29 | |
34 | |
36 | |
40 | |
42 | |
42 | |
42 | |
A-1 | |
B-1 |
(1) | The Fund may not issue senior securities, except as permitted under the 1940 Act. |
(2) | The Fund may not borrow money, except as permitted under the 1940 Act. |
(3) | The Fund will not underwrite the securities of other issuers except to the extent the Fund may be considered an underwriter under the Securities Act of 1933, as amended (the “1933 Act”), in connection with the purchase and sale of portfolio securities. |
(4) | The Fund will not purchase or sell real estate or interests therein, unless acquired as a result of ownership of securities or other instruments (but this shall not prohibit the Fund from purchasing or selling securities or other instruments backed by real estate or of issuers engaged in real estate activities). |
(5) | The Fund may not make loans, except as permitted under the 1940 Act and exemptive orders granted thereunder. |
(6) | The Fund may not purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures contracts, forward contracts or other derivative instruments, or from investing in securities or other instruments backed by physical commodities). |
(7) | The Fund may not concentrate its investments in securities of issuers in any one industry, as the term “concentrate” is used in the 1940 Act, except that the Fund will concentrate its assets in real estate investment trusts (“REITs”) and/or real estate management and development companies, sub-industries of the real estate industry group. |
(1) | The Fund may invest in U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities. U.S. government securities include securities that are issued or guaranteed by the U.S. Treasury, by various agencies of the U.S. government, or by various instrumentalities that have been established or sponsored by the U.S. government. U.S. Treasury securities are backed by the “full faith and credit” of the United States. Securities issued or guaranteed by federal agencies and U.S. government-sponsored instrumentalities may or may not be backed by the full faith and credit of the United States. Some of the U.S. government agencies that issue or guarantee securities include the Export-Import Bank of the United States, the Farmers Home Administration, the Federal Housing Administration, the Maritime Administration, the Small Business Administration and the Tennessee Valley Authority. An instrumentality of the U.S. government is a government agency organized under federal charter with government supervision. Instrumentalities issuing or guaranteeing securities include, among others, the Federal Home Loan Banks, the Federal Land Banks, the Central Bank for Cooperatives, Federal Intermediate Credit Banks and Federal National Mortgage Association. In the case of those U.S. government securities not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality issuing or guaranteeing the security for ultimate repayment, and may not be able to assert a claim against the United States itself in the event that the agency or instrumentality does not meet its commitment. The U.S. government, its agencies and instrumentalities do not guarantee the market value of their securities; and, consequently, the value of such securities may fluctuate. |
(2) | The Fund may invest in certificates of deposit issued against funds deposited in a bank or savings and loan association. Such certificates are for a definite period of time, earn a specified rate of return, and are normally negotiable. If such certificates of deposit are non-negotiable, they will be considered illiquid securities and be subject to the Fund’s 15% restriction on investments in illiquid securities. Pursuant to the certificate of deposit, the issuer agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current FDIC regulations, the maximum insurance payable as to any one certificate of deposit is $250,000; therefore, certificates of deposit purchased by the Fund may not be fully insured. The Fund may only invest in certificates of deposit issued by U.S. banks with at least $1 billion in assets. |
(3) | The Fund may invest in bankers’ acceptances, which are short-term credit instruments used to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then “accepted” by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at the going rate of interest for a specific maturity. |
(4) | The Fund may invest in repurchase agreements, which involve purchases of debt securities with counterparties that are deemed by the Advisor to present acceptable credit risks. In such an action, at the time the Fund purchases the security, it simultaneously agrees to resell and redeliver the security to the seller, who also simultaneously agrees to buy back the security at a fixed price and time. This assures a predetermined yield for the Fund during its holding period since the resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Fund to invest temporarily available cash. The Fund may enter into repurchase agreements only with respect to obligations of the U.S. government or its agencies or instrumentalities; certificates of deposit; or bankers’ acceptances in which the Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the Fund is entitled to sell the underlying collateral. If the value of the collateral declines after the agreement is entered into, however, and if the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Fund |
could incur a loss of both principal and interest. The portfolio managers monitor the value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. The portfolio managers do so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to the Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of the Fund to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws. | |
(5) | The Fund may invest in bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the yields of these investments will be reduced. |
(6) | The Fund may invest in commercial paper, which are short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no secondary market for the notes. However, they are redeemable by the Fund at any time. The Fund’s portfolio managers will consider the financial condition of the corporation (e.g., earning power, cash flow and other liquidity ratios) and will continuously monitor the corporation’s ability to meet all of its financial obligations, because the Fund’s liquidity might be impaired if the corporation were unable to pay principal and interest on demand. The Fund may invest in commercial paper only if it has received the highest rating from at least one nationally recognized statistical rating organization or, if unrated, judged by First Trust to be of comparable quality. |
(7) | The Fund may invest in shares of money market funds, as consistent with its investment objective and policies. Shares of money market funds are subject to management fees and other expenses of those funds. Therefore, investments in money market funds will cause the Fund to bear proportionately the costs incurred by the money market funds’ operations. At the same time, the Fund will continue to pay its own management fees and expenses with respect to all of its assets, including any portion invested in the shares of other investment companies. It is possible for the Fund to lose money by investing in money market funds. |
Portfolio Turnover Rate | |
Fiscal Year Ended October 31, | |
2018 | 2017 |
85% | 104% |
(1) | Market Risk. Market risk is the risk that the value of the underlying assets may go up or down. Adverse movements in the value of an underlying asset can expose the Fund to losses. Derivative instruments may include elements of leverage and, accordingly, fluctuations in the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the portfolio managers’ ability to predict movements of the securities, currencies, and commodities markets, which may require different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy adopted will succeed. A decision to engage in a derivative transaction will reflect the portfolio managers’ judgment that the derivative transaction will provide value to the Fund and its shareholders and is consistent with the Fund’s objective, investment limitations, and operating policies. In making such a judgment, the portfolio managers will analyze the benefits and risks of the derivative transactions and weigh them in the context of the Fund’s overall investments and investment objective. |
(2) | Credit Risk/Counterparty Risk. Credit risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivatives is generally less than for privately-negotiated or OTC derivatives, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance. For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, the Fund will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transactions and possibly other losses to the Fund. The Fund will enter into transactions in derivative instruments only with counterparties that First Trust reasonably believes are capable of performing under the contract. |
(3) | Correlation Risk. Correlation risk is the risk that there might be an imperfect correlation, or even no correlation, between price movements of a derivative instrument and price movements of investments being hedged. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged with any change in the price of the underlying asset. With an imperfect hedge, the value of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option or selling a futures contract) increased by less than the decline in value of the hedged investments, the hedge would not be perfectly correlated. This might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. The effectiveness of hedges using instruments on indices will depend, in part, on the degree of correlation between price movements in the index and the price movements in the investments being hedged. |
(4) | Liquidity Risk. Liquidity risk is the risk that a derivative instrument cannot be sold, closed out or replaced quickly at or very close to its fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange-traded derivatives since they often can only be closed out with the other party to the transaction. The Fund might be required by applicable regulatory requirements to maintain assets as “cover,” maintain segregated accounts, and/or make margin payments when it takes positions in derivative instruments involving obligations to third parties (i.e., instruments other than purchase options). If the Fund is unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expires, matures, or is closed out. These requirements might impair the Fund’s ability to sell a security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time. The Fund’s ability to sell or close out a position in an instrument prior to expiration or maturity depends upon the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the counterparty to enter into a transaction closing out the position. Due to liquidity risk, there is no assurance that any derivatives position can be sold or closed out at a time and price that is favorable to the Fund. |
(5) | Legal Risk. Legal risk is the risk of loss caused by the unenforceability of a party’s obligations under the derivative. While a party seeking price certainty agrees to surrender the potential upside in exchange for downside protection, |
the party taking the risk is looking for a positive payoff. Despite this voluntary assumption of risk, a counterparty that has lost money in a derivative transaction may try to avoid payment by exploiting various legal uncertainties about certain derivative products. | |
(6) | Systemic or “Interconnection” Risk. Systemic or “interconnection” risk is the risk that a disruption in the financial markets will cause difficulties for all market participants. In other words, a disruption in one market will spill over into other markets, perhaps creating a chain reaction. Much of the OTC derivatives market takes place among the OTC dealers themselves, thus creating a large interconnected web of financial obligations. This interconnectedness raises the possibility that a default by one large dealer could create losses for other dealers and destabilize the entire market for OTC derivative instruments. |
Name and Year of Birth | Position and Offices with Trust | Term of Office and Year First Elected or Appointed | Principal Occupations During Past 5 Years | Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During the Past 5 Years |
TRUSTEE WHO IS AN INTERESTED PERSON OF THE TRUST | |||||
James A. Bowen (1) 1955 | Chairman of the Board and Trustee | • Indefinite term • Since inception | Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) | 163 Portfolios | None |
INDEPENDENT TRUSTEES | |||||
Richard E. Erickson 1951 | Trustee | • Indefinite term • Since inception | Physician; Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007 to November 2015) | 163 Portfolios | None |
Thomas R. Kadlec 1957 | Trustee | • Indefinite term • Since inception | President, ADM Investor Services, Inc. (Futures Commission Merchant) | 163 Portfolios | Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association |
Robert F. Keith 1956 | Trustee | • Indefinite term • Since inception | President, Hibs Enterprises (Financial and Management Consulting) | 163 Portfolios | Director of Trust Company of Illinois |
Niel B. Nielson 1954 | Trustee | • Indefinite term • Since inception | Senior Advisor (August 2018 to present), Managing Director and Chief Operating Officer (January 2015 to August 2018), Pelita Harapan Educational Foundation (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services) | 163 Portfolios | Director of Covenant Transport, Inc. (May 2003 to May 2014) |
Name and Year of Birth | Position and Offices with Trust | Term of Office and Length of Service | Principal Occupations During Past 5 Years |
OFFICERS OF THE TRUST | |||
James M. Dykas 1966 | President and Chief Executive Officer | • Indefinite term • Since January 2016 | Managing Director and Chief Financial Officer (January 2016 to present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
W. Scott Jardine 1960 | Secretary and Chief Legal Officer | • Indefinite term • Since inception | General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; and Secretary, Stonebridge Advisors LLC |
Daniel J. Lindquist 1970 | Vice President | • Indefinite term • Since inception | Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Kristi A. Maher 1966 | Chief Compliance Officer and Assistant Secretary | • Indefinite term • Since January 2011 and since inception, respectively | Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Donald P. Swade 1972 | Treasurer, Chief Financial Officer and Chief Accounting Officer | • Indefinite term • Since January 2016 | Senior Vice President (July 2016 to Present), Vice President (April 2012 to July 2016), First Trust Advisors L.P. and First Trust Portfolios L.P. |
Name and Year of Birth | Position and Offices with Trust | Term of Office and Length of Service | Principal Occupations During Past 5 Years |
Roger F. Testin 1966 | Vice President | • Indefinite term • Since inception | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Stan Ueland 1970 | Vice President | • Indefinite term • Since inception | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
(1) | Mr. Bowen is deemed an “interested person” of the Trust due to his position as Chief Executive Officer of First Trust, investment advisor of the Fund. |
Name of Trustee | Compensation from the Fund (1) | Total Compensation from the First Trust Fund Complex (2) |
Richard E. Erickson | $3,999 | $424,710 |
Thomas R. Kadlec | $3,999 | $413,499 |
Robert F. Keith | $3,999 | $414,497 |
Niel B. Nielson | $3,999 | $403,375 |
(1) | The compensation paid by the Fund to the Independent Trustees for the fiscal year ended October 31, 2018 for services to the Fund. |
(2) | The total compensation paid to the Independent Trustees for the calendar year ended December 31, 2018 for services to the 161 portfolios existing in 2018, which consisted of 7 open-end mutual funds, 15 closed-end funds and 139 exchange-traded funds. |
Trustee | Dollar Range of Equity Securities in the Fund (Number of Shares Held) | Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Trustee in the First Trust Fund Complex |
Interested Trustee | ||
James A. Bowen | None | Over $100,000 |
Independent Trustees | ||
Richard E. Erickson | None | Over $100,000 |
Thomas R. Kadlec | None | Over $100,000 |
Robert F. Keith | None | Over $100,000 |
Niel B. Nielson | None | Over $100,000 |
Amount of Unitary Fees | |||
Inception Date | Fiscal Year Ended October 31, | Fiscal Period Ended October 31, 2016 | |
2018 | 2017 | ||
11/11/2015 | $11,026 | $9,684 | $15,253 |
• | Jerry Ehlinger, CFA, is Managing Director of HRES LLC and the Lead Portfolio Manager in Heitman’s North American Public Real Estate Securities group. He also serves as a Portfolio Manager for the firm’s global real estate securities strategies. Throughout his career, Jerry has held a number of related investment positions in the REIT industry. Before joining Heitman in 2013, Jerry was Lead Portfolio Manager and Head of Real Estate Securities, Americas at DB/RREEF Real Estate. Prior, Jerry served as Senior Vice President and Portfolio Manager of Heitman’s real estate securities group from 2000 to 2004. He began his career at Morgan Stanley in 1996 where he primarily covered the REIT sector both as a sell-side analyst and as a senior research associate at Morgan Stanley Asset Management. Jerry received an MS in Finance, Investment and Banking from the University of Wisconsin-Madison and a BS in Finance from the University of Wisconsin-Whitewater. Among other professional affiliations, Jerry is a member of the National Multi Housing Council, International Council of Shopping Centers, the CFA Institute, the CFA Society of Chicago, and the National Association of Real Estate Investment Trusts; |
• | John White, is Managing Director and the Lead Portfolio Manager in Heitman’s Asia-Pacific Public Real Estate Securities group. He is an equity owner of the firm and a member of Heitman’s Management Committee. He also serves as a Portfolio Manager for the firm's global real estate securities strategies. John has over 20 years of experience in the public and private equity and debt real estate markets across the Asia-Pacific region. Prior to joining Heitman in 2010, John was co-head of real estate securities at Challenger (Heitman’s Asian JV partner for real estate securities) for five years; he was also senior investment manager, real estate securities at HSBC Asset Management from 2001. Before moving to investment management, John worked in investment banking as a senior property analyst at HSBC and as a manager—real estate credit at ANZ Banking Group in Australia and in South-East Asia. He began his career as a real estate valuer at Landauer and Chesterton. John received a BBus in Land Economy from University of Western Sydney-Hawkesbury and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. He is a member of the Royal Institute of Chartered Surveyors, the Asian Public Real Estate Association, the Australian Property Institute and the Financial Services Institute of Australasia. |
• | Jacques Perdrix is a Senior Vice President in Heitman’s European Public Real Estate Securities group. His role with Heitman focuses on portfolio management, including fundamental company and market analysis. Prior to joining Heitman, Mr. Perdrix was at Griffin Capital Management where he worked as an analyst and assistant portfolio manager on long-only and long/short equity and fixed income funds covering mid/large-caps on a broad range of sectors and geographies. Previously, Mr. Perdrix worked at equity long/short hedge fund Gugner Partners as a senior analyst and back-up trader focusing on European small/mid-caps across all sectors. Mr. Perdrix started his career within Citigroup’s Investment Banking Division, M&A Financial Institutions Group, in both Paris and London. Mr. Perdrix, a French national, received a Specialised Master’s in Corporate Finance from EM Lyon School of Management and a Master of Science in Management from ESC Grenoble School of Management. He is FSA qualified. |
• | Andreas Welter is a Senior Vice President in Heitman’s European Public Real Estate Securities group. His role with Heitman focuses on portfolio construction, fundamental company and market analysis supporting the Portfolio Management team. Prior to joining the firm, Mr. Welter was at Deutsche Bank AG, where he was a senior sell-side equity research analyst for three years. In that time, Mr. Welter covered companies in various industry sectors in Germany (e.g., real estate, financials, construction, logistics). Previously, Mr. Welter worked at the Middle Office & Advisory Desk of B. Metzler seel. Sohn & Co., one of Germany’s largest family-owned investment managers. Mr. Welter earned the title of Bankkaufmann (apprenticeship in banking) from the Chamber of Commerce and Industry Frankfurt and holds a Diploma in International Business Administration (Diplom-Betriebswirt) from one of the top-ranked universities in Europe (Hochschule Darmstadt). |
Portfolio Manager | Registered Investment Companies Number of Accounts ($ Assets) | Other Pooled Investment Vehicles Number of Accounts ($ Assets) | Other Accounts Number of Accounts ($ Assets) |
Jerry Ehlinger | 3 ($264,458,522) | 16 ($2,782,886,226) | 21 ($2,353,402,917) |
John White | 1 ($20,529,572) | 9 ($852,039,877) | 8 ($597,835,564) |
Jacques Perdrix | 1 ($12,606,416) | 9 ($568,165,218) | 8 ($403,106,344) |
Andreas Welter | 1 ($12,606,416) | 9 ($568,165,218) | 8 ($403,106,344) |
Amount of Sub-Advisory Fees | |||
Inception Date | Fiscal Year Ended October 31, | Fiscal Period Ended October 31, 2016 | |
2018 | 2017 | ||
11/11/2015 | $0 | $0 | $0 |
Sub-Sub-Advisor | Inception Date | Amount of Sub-Sub-Advisory Fees | ||
Fiscal Year Ended October 31, | Fiscal Period Ended October 31, | |||
2018 | 2017 | 2016 | ||
Heitman HK Limited | 11/11/2015 | $0 | $0 | $0 |
Heitman GmbH | 11/11/2015 | $0 | $0 | $0 |
Aggregate Amount of Brokerage Commissions | |||
Inception Date | Fiscal Year Ended October 31, | Fiscal Period Ended October 31, 2016 | |
2018 | 2017 | ||
11/11/2015 | $2,082 | $1,557 | $2,681 |
Argentina | Australia | Austria | Belgium | Brazil | Canada | Chile |
March 4 March 5 April 2 April 19 May 1 June 20 July 9 November 20 December 25 January 1 | April 22 April 25 June 10 December 25 December 26 January 1 January 28 | April 19 April 22 May 1 June 10 December 24 December 25 December 26 December 31 January 1 | April 19 April 22 May 1 December 25 December 26 January 1 | March 4 March 5 April 19 May 1 June 20 November 15 November 20 December 24 December 25 December 31 January 1 January 25 | April 19 May 20 July 1 August 5 September 2 October 14 December 25 December 26 January 1 February 18 | April 19 May 1 May 21 July 16 August 15 September 18 September 19 November 1 December 25 January 1 |
China | Denmark | Finland | France | Germany | Greece | Hong Kong |
April 5 May 1 June 7 September 13 October 1 October 2 October 3 October 4 October 7 January 1 February 4 February 5 February 6 February 7 February 8 | April 18 April 19 April 22 May 17 May 30 June 5 June 10 December 25 December 26 January 1 | April 19 April 22 May 1 May 30 June 22 November 2 December 6 December 25 December 26 January 1 January 6 | April 19 April 22 May 1 December 25 December 26 January 1 | April 19 April 21 May 1 June 10 October 3 December 25 December 26 January 1 | March 11 March 25 April 19 April 22 April 26 April 29 May 1 June 17 August 15 October 28 December 24 December 25 December 26 January 1 | April 5 April 19 April 22 May 1 May 13 June 7 July 1 October 1 October 7 December 25 December 26 January 1 February 5 February 6 February 7 |
India | Ireland | Israel | Italy | Japan | Malaysia | Mexico |
March 4 March 21 April 14 May 1 June 5 August 15 September 2 October 2 October 28 December 25 | March 17 April 22 May 6 June 3 August 5 October 28 December 25 December 26 January 1 | March 21 April 25 April 26 May 8 May 9 June 9 August 11 September 29 September 30 October 1 October 8 October 9 October 13 October 14 October 20 October 21 | April 19 April 22 May 1 August 15 December 24 December 25 December 26 December 31 January 1 | March 21 April 29 May 3 May 4 May 6 July 15 August 12 September 16 September 23 October 14 November 4 November 23 December 31 January 1 January 2 January 3 January 14 February 11 | May 1 May 20 May 22 May 30 May 31 June 4 June 5 June 6 August 12 September 2 September 9 September 16 October 28 November 10 December 25 January 1 January 21 February 1 February 4 February 5 February 6 | March 18 April 18 April 19 May 1 September 16 November 18 December 12 December 25 January 1 February 4 |
New Zealand | Netherlands | Norway | Portugal | Singapore | South Africa | South Korea |
April 19 April 22 April 25 June 3 October 28 December 25 December 26 January 1 January 2 February 6 | April 19 April 22 May 1 December 25 December 26 January 1 | April 17 April 18 April 19 April 22 May 1 May 17 May 30 June 10 December 24 December 25 December 26 December 31 January 1 | April 19 April 22 May 1 December 25 December 26 January 1 | April 19 May 1 May 20 June 5 August 9 August 12 October 28 December 24 December 25 December 31 January 1 February 4 February 5 February 6 | March 21 April 19 April 22 May 1 August 9 September 24 December 16 December 25 December 26 January 1 | March 1 May 1 May 6 June 6 August 15 September 12 September 13 October 3 October 9 December 25 December 31 January 1 February 4 February 5 February 6 |
Spain | Sweden | Switzerland | Taiwan | Thailand | United Kingdom | United States |
April 19 May 1 December 25 January 1 | April 19 April 22 May 1 May 30 June 6 December 24 December 25 December 26 December 31 January 1 | April 19 April 22 May 1 May 30 June 10 August 1 December 24 December 25 December 26 December 31 January 1 January 2 | April 4 April 5 May 1 June 7 September 13 October 10 January 1 February 4 February 5 February 6 February 7 February 8 February 28 | April 8 April 15 April 16 May 1 May 20 July 16 July 29 August 12 October 14 October 23 December 5 December 10 December 31 January 1 February 19 | April 19 April 22 May 6 May 27 August 26 December 24 December 25 December 26 January 1 | April 19 May 27 July 3 July 4 September 2 November 28 November 29 December 24 December 25 January 1 January 21 February 18 |
Total Non-Expiring Capital Loss Available |
$129,936 |
(1) | Common stocks and other equity securities listed on any national or foreign exchange other than The Nasdaq Stock Market LLC (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”) will be valued at the last sale price on the exchange on which they are principally traded, or the official closing price for Nasdaq and AIM securities. Portfolio securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, on the Business Day as of which such value is being determined at the close of the exchange representing the principal market for such securities. |
(2) | Securities traded in the OTC market are fair valued at the mean of the bid and asked price, if available, and otherwise at their closing bid price. |
(3) | Exchange traded options and futures contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, they will be fair valued at the mean of the bid and asked price. If no mean price is available, they will be fair valued at their closing bid price. OTC options and futures contracts are fair valued at the mean of the most recent bid and asked price, if available, and otherwise at their closing bid price. |
(4) | Forward foreign currency contracts are fair valued at the current day’s interpolated foreign exchange rate, as calculated using the current day’s spot rate, and the 30, 60, 90 and 180-day forward rates provided by a pricing service or by certain independent dealers in such contracts. |
(1) | Fixed-income securities, convertible securities, interest rate swaps, credit default swaps, total return swaps, currency swaps, currency-linked notes, credit-linked notes and other similar instruments will be fair valued using a pricing service. |
(2) | Fixed income and other debt securities having a remaining maturity of 60 days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following: |
(i) | the credit conditions in the relevant market and changes thereto; |
(ii) | the liquidity conditions in the relevant market and changes thereto; |
(iii) | the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates); |
(iv) | issuer-specific conditions (such as significant credit deterioration); and |
(v) | any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost. |
(3) | Repurchase agreements will be valued as follows. Overnight repurchase agreements will be fair valued at cost. Term repurchase agreements (i.e., those whose maturity exceeds seven days) will be fair valued by the Advisor’s Pricing Committee at the average of the bid quotations obtained daily from at least two recognized dealers. |
NAME OF BENEFICIAL OWNER | % OF OUTSTANDING SHARES OWNED |
FIRST TRUST HEITMAN GLOBAL PRIME REAL ESTATE ETF | |
Goldman Sachs & Co. LLC | 20.00% |
Credit Suisse Securities (USA) LLC | 18.15% |
LPL Financial Corporation | 10.69% |
Merrill Lynch, Pierce, Fenner & Smith Incorporated | 10.23% |
RBC Capital Markets, LLC | 8.47% |
Citadel Securities LLC | 7.49% |
Pershing LLC | 5.18% |
(1) | Citadel Securities LLC: 131 South Dearborn Street, Chicago, Illinois 60603 |
(2) | Credit Suisse Securities (USA) LLC: 7033 Louis Stevens Drive, Global Proxy Services, Research Triangle Park, North Carolina 27560 |
(3) | Goldman Sachs & Co. LLC: 30 Hudson Street, Jersey City, New Jersey 07302 |
(4) | LPL Financial Corporation: 9785 Towne Centre Drive, San Diego, California 92121 |
(5) | Merrill Lynch, Pierce, Fenner & Smith Incorporated: 4804 Deer Lake Dr E, Jacksonville, Florida 32246 |
(6) | Pershing LLC: One Pershing Plaza, Jersey City, New Jersey 07399 |
(7) | RBC Capital Markets, LLC: 60 S 6th Street P-09, Minneapolis, Minnesota 55402 |
Proxy Voting
I. | Operations prints a Proxy Analysis Report containing a compilation of “FOR”, “AGAINST”, “ABSTAIN”, and “WITHHOLD” recommendations received from the applicable proxy firm with respect to the issues on a particular proxy; |
II. | Operations sends the Proxy Analysis Report to the PM who is responsible for review of the company conducting the proxy; |
III. | In reviewing the recommendations to determine how to respond to the proxy in the best interest of clients, the PM may consider information from various sources including, without limitation, another Heitman PM or research analyst, management personnel of the company conducting the proxy and shareholder groups, as well as the possibility of any actual or perceived potential conflicts of interest between the applicable Heitman adviser and any of its clients with respect to such proxy; |
IV. | The PM returns the Proxy Analysis Report to Operations indicating his or her voting recommendation for the proxy, as well as a description and explanation of any actual or perceived potential conflicts of interest between |
the applicable Heitman adviser and its clients with respect. If a PM recommends responding to a particular proxy contrary to the proxy firm recommendation or perceives an actual or potential conflict of interest, the exception is noted and set aside for consideration by the Proxy Committee; | |
V. | Operations compiles all exceptions and forwards such exceptions promptly to the members of the Proxy Committee, selecting an appropriate Public Securities Lead PM. The Proxy Committee convenes to review the exceptions; |
VI. | Proxy Committee meetings may be conducted in person, via teleconference, videoconference or via e-mail. Regardless of the manner in which the Proxy Committee meeting has been conducted, Operations will participate and will document the decisions of the Proxy Committee (a “Proxy Committee Report”); |
VII. | In instances where suspected conflicts of interest have been identified, the Proxy Committee will evaluate whether an actual or potential material conflict of interests exists and, if so, how it should be addressed in voting or not voting the particular proxy. In such cases, the Proxy Committee may decide (1) to independently determine that no material conflict of interest exists or will likely potentially exist, (2) to respond to such proxy in strict accordance with the recommendations of the proxy firm or (3) to take another course of action that, in the opinion of the Proxy Committee, adequately addresses the conflict of interests issue. |
VIII. | At or following the Proxy Committee meeting, the Proxy Committee may confirm or overturn, in any case, either in whole or in part, any recommendations made by the PM. The vote of a majority of the Proxy Committee shall be required to confirm any recommendations by the PM to vote any proxy contrary to the proxy firm recommendation as to how to vote that issue; |
IX. | In cases other than those requiring a Proxy Committee meeting, Operations will respond to the proxy in accordance with the recommendations of the proxy firm except in instances where a client has advised a Heitman in writing that particular proxies or proxies of a certain type should be responded to in a particular fashion, in which circumstance Operations will respond to the proxy in question in accordance with such advice; and |
X. | Upon request from any member of the Proxy Committee, Operations will prepare a Proxy Voting Summary for the Proxy Committee containing all of the proxy firm’s proxy vote recommendations that were overridden during the period requested and also highlighting any proxy issues that were identified as presenting actual and potential conflicts of interest and how they were addressed. |
XI. | The Operations Department is responsible for reporting to clients on its proxy voting activity according to the terms of the clients’ Investment Management Agreements. The Operations Department is also responsible for submitting proxy voting information to each mutual fund client, assisting with the preparation of Form N-PX and reviewing a draft of Form N-PX for accuracy, prior to filing by the mutual fund client. |
I. | These policies and procedures, and any amendments thereto; |
II. | Each proxy statement (maintained on the proxy firm’s website); |
III. | Proxy Analysis Report (maintained on the proxy firm’s website); |
IV. | Record of each vote cast and each abstention (maintained on the proxy firm’s website); |
V. | Documentation, if any, created or presented to the Proxy Committee, and Proxy Committee Reports which were material to making a decision on how to respond to any proxy, and memorializing the basis for that decision; |
VI. | Any other reports or memorializations prepared according to the above procedures; and |
VII. | Each written client request for information and a copy of any written response by any Heitman to a client’s written or oral request for information. |
FIRST TRUST First Trust Exchange-Traded Fund II -------------------------------------------------------------------------------- First Trust STOXX(R) European Select Dividend Index Fund (FDD) First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (FFR) First Trust Dow Jones Global Select Dividend Index Fund (FGD) First Trust Global Wind Energy ETF (FAN) First Trust Global Engineering and Construction ETF (FLM) First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (GRID) First Trust Indxx Global Natural Resources Income ETF (FTRI) First Trust Indxx Global Agriculture ETF (FTAG) First Trust BICK Index Fund (BICK) First Trust Nasdaq Smartphone Index Fund (FONE) First Trust NASDAQ Global Auto Index Fund (CARZ) First Trust Cloud Computing ETF (SKYY) First Trust International IPO ETF (FPXI) First Trust Nasdaq Cybersecurity ETF (CIBR) ---------------------- Annual Report September 30, 2018 ---------------------- <PAGE> -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II ANNUAL REPORT SEPTEMBER 30, 2018 <TABLE> <CAPTION> <S> <C> Shareholder Letter ....................................................................... 2 Market Overview .......................................................................... 3 Fund Performance Overview First Trust STOXX(R) European Select Dividend Index Fund (FDD) ..................... 4 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (FFR) ........ 6 First Trust Dow Jones Global Select Dividend Index Fund (FGD) ...................... 8 First Trust Global Wind Energy ETF (FAN) ........................................... 10 First Trust Global Engineering and Construction ETF (FLM) 12 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (GRID) .... 14 First Trust Indxx Global Natural Resources Income ETF (FTRI) ....................... 16 First Trust Indxx Global Agriculture ETF (FTAG) .................................... 18 First Trust BICK Index Fund (BICK) ................................................. 20 First Trust Nasdaq Smartphone Index Fund (FONE) .................................... 22 First Trust NASDAQ Global Auto Index Fund (CARZ) ................................... 24 First Trust Cloud Computing ETF (SKYY) ............................................. 26 First Trust International IPO ETF (FPXI)............................................ 28 First Trust Nasdaq Cybersecurity ETF (CIBR) ........................................ 30 Notes to Fund Performance Overview ....................................................... 32 Understanding Your Fund Expenses ......................................................... 33 Portfolio of Investments First Trust STOXX(R) European Select Dividend Index Fund (FDD) ..................... 35 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (FFR) ........ 36 First Trust Dow Jones Global Select Dividend Index Fund (FGD) ...................... 42 First Trust Global Wind Energy ETF (FAN) ........................................... 44 First Trust Global Engineering and Construction ETF (FLM) .......................... 47 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (GRID) .... 50 First Trust Indxx Global Natural Resources Income ETF (FTRI) ....................... 52 First Trust Indxx Global Agriculture ETF (FTAG) .................................... 54 First Trust BICK Index Fund (BICK) ................................................. 56 First Trust Nasdaq Smartphone Index Fund (FONE) .................................... 58 First Trust NASDAQ Global Auto Index Fund (CARZ) ................................... 61 First Trust Cloud Computing ETF (SKYY) ............................................. 63 First Trust International IPO ETF (FPXI) ........................................... 64 First Trust Nasdaq Cybersecurity ETF (CIBR) ........................................ 66 Statements of Assets and Liabilities ..................................................... 68 Statements of Operations ................................................................. 72 Statements of Changes in Net Assets ...................................................... 76 Financial Highlights ..................................................................... 84 Notes to Financial Statements ............................................................ 91 Report of Independent Registered Public Accounting Firm .................................. 103 Additional Information ................................................................... 104 Board of Trustees and Officers ........................................................... 112 Privacy Policy ........................................................................... 114 </TABLE> <PAGE> -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ("First Trust" or the "Advisor") and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of First Trust Exchange-Traded Fund II (the "Trust") described in this report (each such series is referred to as a "Fund" and collectively, as the "Funds") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. PERFORMANCE AND RISK DISCLOSURE There is no assurance that any Fund described in this report will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund. See "Risk Considerations" in the Additional Information section of this report for a discussion of other risks of investing in the Funds. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. The Advisor may also periodically provide additional information on Fund performance on each Fund's webpage at www.ftportfolios.com. HOW TO READ THIS REPORT This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data and analysis that provide insight into each Fund's performance and investment approach. By reading the market overview by Robert F. Carey, Chief Market Strategist of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings. Page 1 <PAGE> -------------------------------------------------------------------------------- SHAREHOLDER LETTER -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II ANNUAL LETTER FROM THE CHAIRMAN AND CEO SEPTEMBER 30, 2018 Dear Shareholders, First Trust is pleased to provide you with the annual report for the First Trust Exchange-Traded Fund II (the "Funds"), which contains detailed information about the Funds for the twelve months ended September 30, 2018, including a market overview and a performance analysis. We encourage you to read this report carefully and discuss it with your financial advisor. As I mentioned in my March 2018 letter, 2017 was a very strong year for U.S. and global markets. Investors were rewarded with rising markets and very little volatility. As 2018 began, investors were hoping for another strong year in the markets. For the entire first quarter, however, increased market volatility was the norm for U.S. and global markets. The markets continued their volatility throughout the second quarter. During April and May, the Dow Jones Industrial Average ("DJIA") closed out each month slightly down but ended both June and July slightly up. August was a strong month for stocks, and the DJIA finished August just under its last high in January of 2018. At the close of the third quarter in September, the markets had moved higher into positive territory. In fact, all three major U.S. indices hit record levels during the quarter. Based on continued strong job growth and the economic outlook in the U.S., the Federal Reserve (the "Fed") raised interest rates in March, June, and September. At their September meeting, the Fed also indicated the possibility of one more rate hike in 2018 as well as three more rate hikes in 2019. Globally, markets underperformed moderately during the first two quarters of 2018. However, the third quarter was a different story for global markets, as the MSCI AC World Index, which captures 23 developed markets and 24 emerging markets, ended September in positive territory. Analysts believe European companies are set up for growing earnings and credit upswings, which bodes well for global market performance. In addition, we believe the longer-term drivers of positive demographics, lower debt levels and improving productivity may lead to a multi-year cyclical upswing in emerging market economic fundamentals. Trade tensions have had an impact on markets around the world and could continue to do so in the future. However, our economists believe that the long-term impact of U.S. tariffs will be to encourage countries to come back to the table and talk about more equal trade. Despite market volatility, we continue to believe that the combination of low interest rates, low inflation and strong corporate earnings still point to a positive economic environment and further growth, though we understand that past performance can never guarantee future performance. We continue to believe that you should invest for the long term and be prepared for market movements, which can happen at any time. You can do this by keeping current on your portfolio and by speaking regularly with your investment professional. Markets go up and they also go down, but savvy investors are prepared for either through careful attention to investment goals. Thank you for giving First Trust the opportunity to be a part of your financial plan. We value our relationship with you and will report on the Funds again in six months. Sincerely, /s/ James A. Bowen James A. Bowen Chairman of the Board of Trustees Chief Executive Officer of First Trust Advisors L.P. Page 2 <PAGE> -------------------------------------------------------------------------------- MARKET OVERVIEW -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II ANNUAL REPORT SEPTEMBER 30, 2018 ROBERT F. CAREY, CFA SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST FIRST TRUST ADVISORS L.P. Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has over 25 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst ("CFA") designation. He is a graduate of the University of Illinois at Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service, and Registered Rep. STATE OF THE GLOBAL ECONOMY In its latest forecast, the International Monetary Fund ("IMF") is calling for world real gross domestic product ("GDP") to hold steady at 3.7% from 2017 through 2019, with the latter two years being estimates, according to its own release. Despite the forecast calling for growth to level off, the 3.7% mark still ranks as the highest level achieved since the 4.3% growth rate posted in 2011. U.S. real GDP is expected to increase from 2.2% in 2017 to 2.9% (estimate) in 2018 and then dip to 2.5% (estimate) in 2019. Inflation estimates have been adjusted higher in 2018 but are projected to level off in 2019. Advanced economies are expected to see consumer prices rise by 2.0% in 2018, compared to 5.0% for emerging and developing economies. The absence of any serious inflationary pressure has helped keep interest rates and bond yields at levels well below their historical norms, in our opinion. Two important financial developments in the U.S. over the past twelve months were the passage of the Tax Cuts and Jobs Act in December 2017 and the ongoing efforts to pare back regulations on banks and businesses. They are two of the major cornerstones of the Trump administration's pro-growth, pro-U.S. agenda. We believe that cutting the federal corporate tax rate from 35% to 21% has already unleashed robust activity. Year-to-date, through September 30, 2018, global mergers and acquisitions ("M&A") deal volume totaled $3.2 trillion, a record high for the first nine months of a calendar year, according to Thomson Reuters. U.S. real GDP growth has only averaged 2.3% in the current recovery (third quarter 2009-second quarter 2018), according to data from the Bureau of Economic Analysis. The IMF has yet to forecast 3.0% real GDP growth for the U.S., but based in part on the 4.2% annualized growth rate posted in the second quarter of 2018, Brian Wesbury, Chief Economist at First Trust Advisors L.P., is calling for 3.0%-plus real GDP growth for both 2018 and 2019, a pace not seen since 2005. ETFGI, an independent research and consultancy firm, reported that total assets invested in exchange-traded funds/exchange-traded products ("ETFs/ETPs") listed globally reached a record $5.25 trillion in September 2018, up 17.45% from $4.47 trillion a year ago, according to its own releases. September 2018 marked the 56th consecutive month of net new cash inflows into ETFs/ETPs listed globally. GLOBAL EQUITIES MARKETS For the 12-month period ended September 30, 2018, the MSCI World ex USA and MSCI Emerging Markets indices posted total returns of 2.67% (USD) and -0.81% (USD), respectively, according to Bloomberg. During that same period, the U.S. dollar appreciated a modest 2.20% against a basket of major currencies, as measured by the U.S. Dollar Index (DXY). With respect to U.S. equities, the S&P 500(R) Index posted a total return of 17.91% over the past 12 months. All 11 sectors were up on a total return basis. The top-performers were the Consumer Discretionary and Information Technology sectors, up 32.52% and 31.49%, respectively, while the worst showing came from the Consumer Staples and Utilities sectors, both of which were up just 2.93%. The 2018 consensus estimated earnings growth rates for the S&P 500(R), MSCI World ex USA and the MSCI Emerging Markets indices were 21.57%, 8.10% and 6.41%, respectively, as of September 28, 2018, according to Bloomberg. The 2019 consensus estimated earnings growth rates were 10.23%, 8.09% and 11.08%, respectively. We believe that corporate earnings drive the direction of stock prices over time and these earnings targets are encouraging, in our opinion. A Bloomberg survey of 25 equity strategists found that their average year-end price target for the S&P 500(R) Index was 2,956 as of August 29, 2018 (most recent), according to its own release. The highest estimate was 3,200, while the lowest was 2,750. The S&P 500(R) Index closed at 2,913.98 on September 28, 2018. It stood 0.57% below its all-time high of 2,930.75 on September 20, 2018. Page 3 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD) First Trust STOXX(R) European Select Dividend Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the STOXX(R) Europe Select Dividend 30 Index (the "STOXX Index"). The shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol "FDD." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the STOXX Index. The STOXX Index consists of 30 high dividend-yielding securities selected from the STOXX(R) Europe 600 Index, including secondary lines of those companies (where there are multiple lines of equity capital in a company), which covers 18 European countries: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. In addition, a company must have a non-negative five-year dividend-per-share growth rate and a dividend-to-earnings ratio of 60% or less. The STOXX Index is compiled and maintained by STOXX Limited. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (8/27/07) Ended Ended (8/27/07) 9/30/18 9/30/18 9/30/18 to 9/30/18 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV 0.74% 4.49% 2.73% -2.82% 24.58% 30.92% -27.18% Market Price 0.38% 4.34% 2.62% -2.84% 23.65% 29.45% -27.38% INDEX PERFORMANCE STOXX(R) Europe Select Dividend 30 Index 1.08% 4.82% 3.29% -2.37% 26.56% 38.28% -23.40% STOXX(R) Europe 600 Index -0.29% 3.95% 5.17% 1.76% 21.40% 65.56% 21.40% MSCI Europe Index -0.30% 3.70% 4.85% 1.51% 19.90% 60.65% 18.03% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a net asset value ("NAV") return of 0.74% during the 12-month period covered by this report. During the same period, the benchmark MSCI Europe Index generated a return of -0.30%. The Financials sector was given the highest allocation in the Fund over the period with a 30.6% allocation. This sector had a -1.6% return and -0.1% contribution to the Fund's return. The Fund's top contributing sector was the Energy sector with a 1.5% contribution, stemming from its 12.2% allocation and 13.3% return. The Fund's least contributing sector was the Telecommunication Services sector with a -1.0% contribution stemming from its 5.1% allocation and -18.9% return. The Fund's currency exposure had a -2.5% impact on performance. On a relative basis, the Fund outperformed the benchmark. The primary cause of the outperformance is attributable to the Fund over allocating and outperforming the benchmark amongst Financials securities by 10.1% and 6.9%, respectively, creating 1.7% of relative outperformance. The Fund underperformed the benchmark amongst the Real Estate sector by -6.4% creating -0.5% of relative drag. ----------------------------- STOXX(R) and the STOXX(R) Europe Select Dividend 30 Index are trademarks of STOXX Limited, Zurich, Switzerland ("STOXX") and have been licensed for use for certain purposes by First Trust. The Fund, based on the STOXX(R) Europe Select Dividend 30 Index, is not sponsored, endorsed, sold or promoted by STOXX and STOXX makes no representation regarding the advisability of trading in such product. Page 4 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Financials 29.63% Utilities 23.58 Energy 11.79 Real Estate 11.75 Health Care 9.79 Industrials 5.03 Communication Services 4.45 Consumer Staples 3.98 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- GlaxoSmithKline PLC 5.58% SSE PLC 5.53 Royal Dutch Shell PLC, Class B 5.51 National Grid PLC 4.81 United Utilities Group PLC 4.73 EDP-Energias de Portugal S.A. 4.51 AstraZeneca PLC 4.21 Fortum OYJ 4.01 J Sainsbury PLC 3.98 TOTAL S.A. 3.60 ------ Total 46.47% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT SEPTEMBER 30, 2008 - SEPTEMBER 30, 2018 First Trust STOXX(R) European STOXX(R) Europe Select STOXX(R) Europe MSCI Europe Select Dividend Index Fund Dividend 30 Index 600 Index Index ----------------------------- ---------------------- --------------- ----------- <S> <C> <C> <C> <C> 9/30/08 $10,000 $10,000 $10,000 $10,000 3/31/09 3,201 3,263 4,836 4,846 9/30/09 9,317 9,523 10,206 10,157 3/31/10 9,086 9,347 10,364 10,297 9/30/10 9,228 9,516 10,496 10,424 3/31/11 10,214 10,551 11,691 11,597 9/30/11 8,610 8,953 9,254 9,193 3/31/12 9,261 9,577 10,810 10,722 9/30/12 9,276 9,602 10,892 10,784 3/31/13 9,268 9,608 12,011 11,853 9/30/13 10,509 10,928 13,639 13,397 3/31/14 11,756 12,244 15,092 14,757 9/30/14 11,421 11,913 14,451 14,177 3/31/15 11,226 11,745 14,359 14,028 9/30/15 10,519 10,973 13,285 12,854 3/31/16 10,804 11,332 13,289 12,844 9/30/16 10,927 11,457 13,577 13,174 3/31/17 11,472 12,077 14,506 14,097 9/30/17 12,995 13,682 16,608 16,111 3/31/18 13,320 14,040 16,655 16,140 9/30/18 13,091 13,829 16,560 16,063 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 150 81 3 0 16 1 0 1 10/1/14 - 9/30/15 145 32 2 0 63 10 0 0 10/1/15 - 9/30/16 158 27 2 0 54 12 0 0 10/1/16 - 9/30/17 181 30 0 0 38 2 0 0 10/1/17 - 9/30/18 147 4 0 0 96 4 0 0 </TABLE> Page 5 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the FTSE EPRA/NAREIT Developed Index (the "FTSE Index"). The shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol "FFR." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the FTSE Index. The FTSE Index is compiled and maintained by FTSE International Limited. The FTSE Index is modified market cap weighted based on free float market capitalization and tracks the performance of listed real estate companies or real estate investment trusts ("REITs") in the FTSE EPRA/NAREIT North America Series, the FTSE EPRA/NAREIT Europe Series and the FTSE EPRA/NAREIT Asia Series. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (8/27/07) Ended Ended (8/27/07) 9/30/18 9/30/18 9/30/18 to 9/30/18 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV 3.99% 5.58% 5.88% 2.52% 31.17% 77.06% 31.78% Market Price 3.58% 5.52% 5.98% 2.49% 30.81% 78.74% 31.41% INDEX PERFORMANCE FTSE EPRA/NAREIT Developed Index 4.62% 6.34% 6.88% 3.37% 35.99% 94.57% 44.37% S&P Global REIT Index 2.85% 6.33% 5.86% 3.06% 35.94% 76.78% 39.74% MSCI World REIT Index 3.18% 6.93% 5.48% 2.72% 39.81% 70.47% 34.68% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of 3.99% during the 12-month period covered by this report. During the same period, the benchmark S&P Global REIT Index generated a return of 2.85%. United States securities were given the highest allocation in the Fund over the period with a 51.7% allocation. These securities returned 4.5% and contributed 2.5% to the Fund's return. Netherlands securities were the Fund's least contributing securities with a -0.3% contribution, stemming from its 2.1% allocation and -12.9% return. The Fund's top performing country was Austria with a 30.2% return, while the Netherlands was the worst performer with a -12.9% return. On a relative basis, the Fund outperformed the benchmark. The primary cause of the outperformance is attributable to the Fund outperforming the benchmark amongst German securities by 12.2%, creating 0.5% of relative outperformance. Outperformance was reversed by 0.6% due to the Fund underperforming the benchmark amongst Hong Kong securities by -22.8%. ----------------------------- The FTSE EPRA/NAREIT Developed Index is calculated by FTSE International Limited ("FTSE"). FTSE does not sponsor, endorse or promote the First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund. All copyright in the index values and constituent list vests in FTSE and/or its licensors. First Trust and the Fund have obtained full license from FTSE to use such copyright in the creation of the First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund. "FTSE(R)", "FT-SE(R)" and "Footsie(R)" are trademarks jointly owned by the London Stock Exchange Plc and the Financial Times Limited and are used by FTSE under license. "NAREIT(R)" is the trademark of the National Association of Real Estate Investment Trusts and "EPRA(R)" is the trademark of the European Public Real Estate Association and are used by FTSE under license. Page 6 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Real Estate 99.75% Health Care 0.16 Consumer Discretionary 0.09 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Simon Property Group, Inc. 3.69% Prologis, Inc. 2.88 Public Storage 2.03 Unibail-Rodamco-Westfield 1.83 Vonovia SE 1.72 AvalonBay Communities, Inc. 1.69 Welltower, Inc. 1.62 Equity Residential 1.61 Digital Realty Trust, Inc. 1.57 Mitsui Fudosan Co., Ltd. 1.52 ------ Total 20.16% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT SEPTEMBER 30, 2008 - SEPTEMBER 30, 2018 First Trust FTSE EPRA/NAREIT Developed FTSE EPRA/NAREIT S&P Global MSCI World Markets Real Estate Index Fund Developed Index REIT Index REIT Index -------------------------------------- ---------------- ---------- ---------- <S> <C> <C> <C> <C> 9/30/08 $10,000 $10,000 $10,000 $10,000 3/31/09 3,849 3,909 3,762 3,678 9/30/09 8,733 8,955 8,055 7,703 3/31/10 9,434 9,719 8,836 8,326 9/30/10 10,260 10,604 9,624 9,016 3/31/11 11,171 11,599 10,824 10,261 9/30/11 9,422 9,874 9,463 9,031 3/31/12 11,444 11,968 11,448 10,887 9/30/12 12,269 12,894 12,188 11,704 3/31/13 13,774 14,511 13,624 12,810 9/30/13 13,498 14,306 13,003 12,192 3/31/14 13,915 14,808 13,778 12,816 9/30/14 14,289 15,266 14,266 13,422 3/31/15 16,022 17,186 16,215 15,136 9/30/15 14,713 15,811 14,853 14,093 3/31/16 16,105 17,403 16,659 15,924 9/30/16 16,912 18,317 17,365 16,561 3/31/17 16,298 17,727 16,716 15,968 9/30/17 17,025 18,596 17,189 16,522 3/31/18 16,872 18,462 16,675 16,210 9/30/18 17,704 19,453 17,679 17,046 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 158 21 0 0 70 3 0 0 10/1/14 - 9/30/15 67 14 0 0 127 44 0 0 10/1/15 - 9/30/16 35 0 0 0 184 33 1 0 10/1/16 - 9/30/17 144 4 0 0 102 1 0 0 10/1/17 - 9/30/18 34 0 0 1 209 7 0 0 </TABLE> Page 7 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD) First Trust Dow Jones Global Select Dividend Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Global Select Dividend Index(SM) (the "Select Dividend Index"). The shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol "FGD." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the Select Dividend Index. The Select Dividend Index is an indicated annual dividend yield weighted index of 100 stocks selected from the developed-market portion of the Dow Jones World Index(SM). Indicated annual dividend yield is a stock's unadjusted indicated annual dividend (not including any special dividends) divided by its unadjusted price. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (11/21/07) Ended Ended (11/21/07) 9/30/18 9/30/18 9/30/18 to 9/30/18 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV 2.26% 4.25% 7.24% 3.24% 23.14% 101.08% 41.32% Market Price 1.71% 4.14% 7.37% 3.20% 22.51% 103.54% 40.81% INDEX PERFORMANCE Dow Jones Global Select Dividend Index(SM) 2.33% 4.37% 7.52% 3.39% 23.84% 106.51% 43.54% Dow Jones World Developed Markets Index(SM) 11.19% 9.54% 9.11% 5.93% 57.71% 139.19% 86.98% MSCI World Index 11.24% 9.28% 8.56% 5.44% 55.87% 127.32% 77.66% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of 2.26% during the 12-month period covered by this report. During the same period, the benchmark MSCI World Index generated a return of 11.24%. The Fund gave the highest allocation to United States securities over the period with a 15.6% weighting. These securities were also the top contributing securities with a 2.3% contribution stemming from their 15.1% return. The top performing country in the Fund was Norway with a 46.2% return, while the Netherlands was the worst performing country in the Fund with a -18.4% return. The Fund's currency exposure had a -3.1% impact on performance. On a relative basis, the Fund underperformed the benchmark. The Fund's holdings within the United States created -2.9% of relative underperformance due to the Fund under allocating the benchmark amongst these well performing securities by 44.7%. The Fund over allocated and outperformed the benchmark amongst Luxembourg securities by 0.7% and 38.5%, respectively, creating 0.4% of relative outperformance. ----------------------------- Dow Jones and Dow Jones Global Select Dividend Index(SM) are trademarks of Dow Jones & Company, Inc. ("Dow Jones") and have been licensed for use for certain purposes by First Trust and the Fund. The Fund, based on the Dow Jones Global Select Dividend Index(SM), is not sponsored, endorsed, sold or promoted by Dow Jones and Dow Jones makes no representation regarding the advisability of trading or investing in such product. Page 8 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Financials 35.34% Communication Services 18.38 Consumer Discretionary 13.39 Utilities 11.03 Energy 7.02 Industrials 5.79 Consumer Staples 3.25 Materials 2.08 Information Technology 2.02 Health Care 1.02 Real Estate 0.68 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- CenturyLink, Inc. 2.73% Galliford Try PLC 2.40 GameStop Corp., Class A 1.75 SES S.A. 1.63 Element Fleet Management Corp. 1.62 Guess?, Inc. 1.54 Spark New Zealand Ltd. 1.53 EDP-Energias de Portugal S.A. 1.37 Fortum OYJ 1.29 Nordea Bank AB 1.28 ------ Total 17.14% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT SEPTEMBER 30, 2008 - SEPTEMBER 30, 2018 First Trust Dow Jones Global Dow Jones Global Select Dow Jones World Developed MSCI World Select Dividend Index Fund Dividend Index(SM) Markets Index(SM) Index ---------------------------- ----------------------- ------------------------- ---------- <S> <C> <C> <C> <C> 9/30/08 $10,000 $10,000 $10,000 $10,000 3/31/09 4,375 6,325 5,416 5,385 9/30/09 11,180 11,369 9,935 9,771 3/31/10 11,612 11,841 10,724 10,498 9/30/10 12,335 12,576 10,712 10,432 3/31/11 13,736 14,023 12,297 11,911 9/30/11 12,141 12,472 10,265 9,979 3/31/12 13,733 13,982 12,336 11,978 9/30/12 14,275 14,561 12,488 12,133 3/31/13 15,014 15,308 13,887 13,397 9/30/13 16,329 16,675 15,165 14,585 3/31/14 17,954 18,358 16,625 15,950 9/30/14 17,727 18,118 16,982 16,364 3/31/15 17,208 17,603 17,631 16,912 9/30/15 15,155 15,429 16,194 15,532 3/31/16 16,119 16,518 17,056 16,329 9/30/16 17,228 17,592 18,131 17,296 3/31/17 18,186 18,665 19,663 18,740 9/30/17 19,665 20,181 21,511 20,438 3/31/18 19,846 20,320 22,492 21,274 9/30/18 20,110 20,651 23,920 22,734 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 219 16 0 0 17 0 0 0 10/1/14 - 9/30/15 105 3 0 0 136 8 0 0 10/1/15 - 9/30/16 65 2 0 0 176 10 0 0 10/1/16 - 9/30/17 184 3 0 0 62 2 0 0 10/1/17 - 9/30/18 171 3 0 0 74 2 1 0 </TABLE> Page 9 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST GLOBAL WIND ENERGY ETF (FAN) First Trust Global Wind Energy ETF (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE Clean Edge Global Wind Energy(TM) Index (the "Index"). The shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol "FAN." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the Index. The Index is developed, maintained and sponsored by Nasdaq, Inc. The Index provides a benchmark for investors interested in tracking public companies throughout the world that are active in the wind energy industry based on analysis of the products and services offered by those companies. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (6/16/08) Ended Ended (6/16/08) 9/30/18 9/30/18 9/30/18 to 9/30/18 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV -2.92% 6.92% -2.06% -6.20% 39.73% -18.78% -48.26% Market Price -3.90% 6.76% -2.11% -6.24% 38.69% -19.22% -48.49% INDEX PERFORMANCE ISE Clean Edge Global Wind Energy(TM) Index -2.41% 7.73% -1.16% -5.45% 45.13% -11.00% -43.80% Russell 3000(R) Index 17.58% 13.46% 12.01% 10.00% 88.02% 210.82% 166.78% MSCI World Index 11.24% 9.28% 8.56% 6.11% 55.87% 127.32% 84.16% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of -2.92% during the 12-month period covered by this report. During the same period, the benchmark MSCI World Index generated a return of 11.24%. The Utilities industry was the heaviest allocated industry over the period in the Fund with a 53.2% weighting. This industry had a 3.1% return and 1.5% contribution. The Capital Goods industry was the Fund's least contributing industry with a -3.7% contribution, stemming from its 44.2% allocation and -8.1% return. The Fund's currency exposure had a -1.9% impact on performance. On a relative basis, the Fund underperformed the benchmark. The Fund over allocated and underperformed the benchmark amongst the Capital Goods industry by 36.1% and -14.1%, respectively, which created -7.9% of relative underperformance. Roughly 1% of relative outperformance was created by the Fund having no exposure to the Banking industry. The benchmark had a 9.3% exposure to the Banking industry, which had a -0.5% return. ----------------------------- The Fund is not sponsored, endorsed, sold or promoted by Nasdaq, Inc., or its affiliates (Nasdaq, Inc., with its affiliates, are referred to as the "Corporations"). The Corporations' only relationship to First Trust is in the licensing of Nasdaq, Inc. and certain trade names of the Corporations and the use of the ISE Index which is determined, composed and calculated by Nasdaq, Inc. without regard to First Trust or the Fund. Page 10 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST GLOBAL WIND ENERGY ETF (FAN) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Utilities 51.67% Industrials 46.12 Materials 2.11 Energy 0.10 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Orsted A/S 8.75% China Longyuan Power Group Corp., Ltd., Class H 8.17 Vestas Wind Systems A/S 7.90 Siemens Gamesa Renewable Energy S.A. 6.91 Boralex, Inc., Class A 5.30 Nordex SE 4.15 Xinjiang Goldwind Science & Technology Co., Ltd., Class H 3.69 China High Speed Transmission Equipment Group Co., Ltd. 3.04 TPI Composites, Inc. 2.69 Infigen Energy 2.55 ------ Total 53.15% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT SEPTEMBER 30, 2008 - SEPTEMBER 30, 2018 First Trust Global ISE Clean Edge Global Russell 3000(R) MSCI World Wind Energy ETF Wind Energy(TM) Index Index Index ---------------- --------------------------- --------------- ---------- <S> <C> <C> <C> <C> 9/30/08 $10,000 $10,000 $10,000 $10,000 3/31/09 5,497 5,566 6,888 6,890 9/30/09 8,574 8,729 9,359 9,771 3/31/10 7,181 7,358 10,500 10,498 9/30/10 5,565 5,743 10,385 10,431 3/31/11 6,377 6,592 12,328 11,910 9/30/11 4,426 4,620 10,442 9,978 3/31/12 4,295 4,477 13,214 11,977 9/30/12 3,711 3,892 13,596 12,133 3/31/13 4,259 4,466 15,139 13,397 9/30/13 5,813 6,131 16,532 14,585 3/31/14 6,770 7,169 18,562 15,950 9/30/14 6,520 6,919 19,468 16,363 3/31/15 6,275 6,692 20,856 16,911 9/30/15 6,040 6,451 19,371 15,531 3/31/16 6,842 7,373 20,785 16,328 9/30/16 7,877 8,502 22,269 17,295 3/31/17 7,823 8,519 24,538 18,739 9/30/17 8,367 9,118 26,432 20,437 3/31/18 8,519 9,269 27,925 21,273 9/30/18 8,122 8,897 31,078 22,734 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 123 31 0 0 83 15 0 0 10/1/14 - 9/30/15 58 8 0 0 130 53 2 1 10/1/15 - 9/30/16 102 20 5 1 96 27 2 0 10/1/16 - 9/30/17 138 31 0 0 79 3 0 0 10/1/17 - 9/30/18 85 13 0 0 140 12 1 0 </TABLE> Page 11 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF (FLM) First Trust Global Engineering and Construction ETF (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE Global Engineering and Construction(TM) Index (the "Index"). The shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol "FLM." The Fund will normally invest in at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the Index. The Index is developed, maintained and sponsored by Nasdaq, Inc. The Index provides a benchmark for investors interested in tracking public companies throughout the world that are active in the engineering and construction industries, based on analysis of the products and services offered by those companies. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (10/13/08) Ended (10/13/08) 9/30/18 9/30/18 to 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV 1.67% 5.09% 8.31% 28.15% 121.54% Market Price 1.22% 5.03% 8.28% 27.79% 120.85% INDEX PERFORMANCE ISE Global Engineering and Construction(TM) Index 2.29% 6.20% 9.91% 35.09% 156.42% Russell 3000(R) Index 17.58% 13.46% 13.82% 88.02% 263.20% MSCI World Industrials Index 7.37% 9.16% 11.39% 55.01% 193.01% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of 1.67% during the 12-month period covered by this report. During the same period, the benchmark MSCI World Industrials Index generated a return of 7.37%. The Construction and Engineering industry was given the highest allocation in the Fund over the period with an 89.8% allocation. Due to the high weighting, this industry was also the Fund's top contributing industry with a 2.4% contribution to the Fund's return, stemming from its 2.5% return. The Fund's top performing industry was the Electric Utilities industry with a 14.4% return, while the Energy Equipment & Services industry was the worst performer with a -11.8% return. The Fund's currency exposure had a -1.8% impact on performance. On a relative basis, the Fund underperformed the benchmark. The primary cause of the underperformance is attributable to the Fund over allocating the relatively poor performing Construction & Engineering industry by 88.5%, creating -4.9% of relative drag. The Fund did not have any exposure to the poor performing Industrial Conglomerates industry, whereas the benchmark had a 13.3% allocation, which created 2.7% of relative outperformance. ----------------------------- The Fund is not sponsored, endorsed, sold or promoted by Nasdaq, Inc., or its affiliates (Nasdaq, Inc., with its affiliates, are referred to as the "Corporations"). The Corporations' only relationship to First Trust is in the licensing of Nasdaq, Inc. and certain trade names of the Corporations and the use of the ISE Index which is determined, composed and calculated by Nasdaq, Inc. without regard to First Trust or the Fund. Page 12 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF (FLM) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Industrials 96.81% Energy 2.58 Utilities 0.61 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Jacobs Engineering Group, Inc. 3.53% Fluor Corp. 3.35 Vinci S.A. 3.11 ACS Actividades de Construccion y Servicios S.A. 3.10 JGC Corp. 2.82 Eiffage S.A. 2.74 Skanska AB, Class B 2.73 Bouygues S.A. 2.70 Quanta Services, Inc. 2.53 Kajima Corp. 2.46 ------ Total 29.07% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT OCTOBER 13, 2008 - SEPTEMBER 30, 2018 First Trust Global Engineering ISE Global Engineering and Russell 3000(R) MSCI World and Construction ETF Construction(TM) Index Index Industrials Index ---------------------------------- -------------------------- --------------- ----------------- <S> <C> <C> <C> <C> 10/13/08 $10,000 $10,000 $10,000 $10,000 3/31/09 8,987 9,387 8,048 7,741 9/30/09 13,384 14,102 10,935 11,514 3/31/10 13,471 14,262 12,268 12,962 9/30/10 13,522 14,368 12,133 13,182 3/31/11 16,745 17,882 14,404 15,710 9/30/11 11,724 12,719 12,200 12,196 3/31/12 14,306 15,435 15,439 15,071 9/30/12 13,827 15,023 15,885 14,748 3/31/13 15,249 16,595 17,688 16,944 9/30/13 17,288 18,980 19,316 18,904 3/31/14 18,939 20,876 21,687 20,610 9/30/14 17,644 19,534 22,746 20,448 3/31/15 17,190 19,318 24,369 21,168 9/30/15 16,376 18,456 22,634 19,024 3/31/16 17,378 19,732 24,286 21,008 9/30/16 18,407 20,939 26,021 22,434 3/31/17 19,753 22,626 28,674 24,487 9/30/17 21,793 25,067 30,888 27,291 3/31/18 21,948 25,195 32,633 28,194 9/30/18 22,159 25,638 36,317 29,302 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 109 0 0 0 136 7 0 0 10/1/14 - 9/30/15 62 2 1 0 170 17 0 0 10/1/15 - 9/30/16 64 3 1 0 159 24 2 0 10/1/16 - 9/30/17 82 0 0 0 163 6 0 0 10/1/17 - 9/30/18 85 9 0 0 148 9 0 0 </TABLE> Page 13 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID) First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ OMX(R) Clean Edge(R) Smart Grid Infrastructure Index(SM) (the "Index"). The shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol "GRID." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the Index. The Index is designed to act as a transparent and liquid benchmark for the grid and electric energy infrastructure sector. The Index includes companies that are primarily engaged and involved in electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector. Clean Edge, Inc. provides a list of companies to be included in the Index to Nasdaq, Inc., which then compiles the Index. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (11/16/09) Ended (11/16/09) 9/30/18 9/30/18 to 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV -1.66% 8.41% 6.50% 49.75% 74.87% Market Price -1.10% 8.68% 6.59% 51.58% 76.19% INDEX PERFORMANCE NASDAQ OMX(R) Clean Edge(R) Smart Grid Infrastructure Index(SM) -1.06% 9.16% 7.33% 54.97% 87.27% Russell 3000(R) Index 17.58% 13.46% 13.92% 88.02% 217.69% S&P Composite 1500(R) Industrials Index 11.98% 12.89% 14.62% 83.31% 235.57% MSCI World Industrials Index 7.37% 9.16% 10.60% 55.01% 144.45% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of -1.66% during the 12-month period covered by this report. During the same period, the benchmark S&P Composite 1500(R) Industrials Index generated a return of 11.98%. The heaviest allocated industry in the Fund over the period was the Electrical Equipment industry with a 28.2% weighting. This industry had a -2.9% contribution to the Fund's return, the least among all industries in the Fund, and a -8.5% return. The Electronic Equipment Instruments & Components industry was the Fund's top contributing industry with a 1.0% contribution stemming from its 16.5% weighting and 4.2% return. The Fund's currency exposure had a -0.6% impact on performance. On a relative basis, the Fund underperformed the benchmark. The primary cause of the underperformance is attributable to the Fund over allocating and underperforming the benchmark among Electrical Equipment securities by 22.9% and -25.0%, respectively, creating -6.1% of relative drag. The Fund under allocated the benchmark amongst the poor performing Industrial Conglomerates securities by 8.9%, creating 2.7% of relative outperformance. ----------------------------- NASDAQ(R), NASDAQ OMX(R), and Clean Edge(R) are the registered trademarks (the "Marks") of Nasdaq, Inc. ("Nasdaq") and Clean Edge, Inc. ("Clean Edge") respectively. Nasdaq and Clean Edge are, collectively with their affiliates, the "Corporations." The Marks are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in any way as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 14 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Industrials 43.98% Information Technology 32.17 Consumer Discretionary 13.81 Utilities 10.04 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- ABB Ltd. 8.36% Red Electrica Corp., S.A. 8.30 Schneider Electric SE 8.23 Aptiv PLC 7.95 Prysmian S.p.A. 7.51 Veoneer, Inc. 4.60 nVent Electric PLC 4.03 Itron, Inc. 4.03 Quanta Services, Inc. 4.02 Landis+Gyr Group AG 3.78 ------ Total 60.81% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT NOVEMBER 16, 2009 - SEPTEMBER 30, 2018 First Trust NASDAQ(R) NASDAQ OMX(R) Russell S&P Composite MSCI World Clean Edge(R) Smart Grid Clean Edge(R) Smart Grid 3000(R) 1500(R) Industrials Industrials Infrastructure Index Fund Infrastructure Index(SM) Index Index Index ------------------------- --------------------------- ------- ------------------- ----------- <S> <C> <C> <C> <C> <C> 11/16/09 $10,000 $10,000 $10,000 $10,000 $10,000 3/31/10 10,257 10,297 10,731 11,205 10,814 9/30/10 10,154 10,236 10,614 11,249 10,997 3/31/11 11,775 11,912 12,600 13,832 13,106 9/30/11 8,161 8,341 10,672 10,743 10,174 3/31/12 9,553 9,741 13,505 14,081 12,572 9/30/12 9,860 10,103 13,895 14,004 12,302 3/31/13 10,996 11,314 15,472 16,373 14,134 9/30/13 11,678 12,082 16,896 18,307 15,769 3/31/14 13,450 13,973 18,971 20,766 17,193 9/30/14 12,401 12,931 19,897 21,102 17,057 3/31/15 12,583 13,168 21,316 22,495 17,657 9/30/15 11,164 11,698 19,798 20,347 15,868 3/31/16 12,302 12,977 21,243 22,980 17,523 9/30/16 14,035 14,828 22,760 24,368 18,713 3/31/17 15,064 15,986 25,079 27,424 20,425 9/30/17 17,786 18,927 27,015 29,969 22,764 3/31/18 18,037 19,213 28,541 31,357 23,517 9/30/18 17,492 18,727 31,763 33,558 24,441 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 186 15 0 0 44 7 0 0 10/1/14 - 9/30/15 72 28 13 2 99 32 4 2 10/1/15 - 9/30/16 68 48 2 0 98 37 0 0 10/1/16 - 9/30/17 150 29 4 5 59 4 0 0 10/1/17 - 9/30/18 167 20 0 1 44 19 0 0 </TABLE> Page 15 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST INDXX GLOBAL NATURAL RESOURCES INCOME ETF (FTRI) First Trust Indxx Global Natural Resources Income ETF (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Indxx Global Natural Resources Income Index (the "Index"). The shares of the Fund are listed and traded on The Nasdaq Stock Market LLC under the ticker symbol "FTRI." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks and/or depositary receipts that comprise the Index. The Index is owned and is developed, maintained and sponsored by Indxx, LLC. The Index is a 50-stock free float adjusted market capitalization weighted index designed to measure the market performance of the 50 highest dividend yielding companies involved in the upstream (i.e., generally exploration and production) segment of the natural resources sector. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (3/11/10) Ended (3/11/10) 9/30/18 9/30/18 to 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV 11.12% -8.00% -7.09% -34.10% -46.71% Market Price 10.86% -7.97% -7.11% -33.99% -46.78% INDEX PERFORMANCE Indxx Global Natural Resources Income Index* 12.36% N/A N/A N/A N/A MSCI All Country World Materials Index 4.62% 4.60% 2.79% 25.24% 26.56% MSCI All Country World Index 9.77% 8.67% 8.89% 51.52% 107.32% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) * Effective on the close of business December 18, 2015, the Fund's underlying index changed from the ISE Global Copper(TM) Index to the Indxx Global Natural Resources Income Index. Therefore, the Fund's performance and total returns shown for the period prior to December 18, 2015, are not necessarily indicative of the performance the Fund, based on its current Index, would have generated. Since the Fund's new underlying index had an inception date of June 1, 2015, it was not in existence for all the periods disclosed. PERFORMANCE REVIEW The Fund generated a NAV return of 11.12% during the 12-month period covered by this report. During the same period, the benchmark MSCI All Country World Materials Index generated a return of 4.62%. The Energy sector was given the highest allocation in the Fund over the period with a 45.9% weighting. This sector was also the top contributing sector in the Fund with a 9.6% contribution, stemming from its 21.6% return. The Utilities sector was the Fund's worst performing and least contributing sector in the Fund with a -11.2% return and -1.5% contribution. The Fund's currency exposure had a -3.7% impact on performance. On a relative basis, the Fund outperformed the benchmark. The benchmark had no exposure to the well performing Energy securities, which created 7.2% of relative outperformance, and had no exposure to Utilities securities, which created -2.1% of relative underperformance. ----------------------------- "Indxx" and "Indxx Global Natural Resources Income Index" are trademarks of Indxx, LLC ("Licensor") and have been licensed for use for certain purposes by First Trust. First Trust Indxx Global Natural Resources Income ETF is based on the Index and is not sponsored, endorsed, sold or promoted by Licensor, and Licensor makes no representation regarding the advisability of trading in such product. Page 16 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST INDXX GLOBAL NATURAL RESOURCES INCOME ETF (FTRI) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Energy 49.43% Materials 29.67 Utilities 13.45 Consumer Staples 7.01 Industrials 0.44 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Rio Tinto PLC 10.46% Royal Dutch Shell PLC, Class A, ADR 10.08 TOTAL S.A., ADR 9.83 Exxon Mobil Corp. 9.74 Tatneft PJSC 4.76 Woodside Petroleum Ltd. 4.61 UPM-Kymmene OYJ 4.48 International Paper Co. 4.06 Veolia Environnement S.A. 3.83 SK Innovation Co., Ltd. 3.76 ------ Total 65.61% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT MARCH 11, 2010 - SEPTEMBER 30, 2018 First Trust Indxx Global MSCI All Country MSCI All Country Natural Resources Income ETF World Materials Index World Index ---------------------------- --------------------- ---------------- <S> <C> <C> <C> 3/11/10 $10,000 $10,000 $10,000 3/31/10 10,297 10,291 10,172 9/30/10 11,208 10,440 10,220 3/31/11 14,567 12,429 11,604 9/30/11 8,910 9,096 9,606 3/31/12 10,984 10,529 11,519 9/30/12 10,141 10,066 11,621 3/31/13 9,256 10,081 12,731 9/30/13 8,087 10,105 13,683 3/31/14 8,027 10,600 14,841 9/30/14 7,893 10,309 15,230 3/31/15 6,189 9,852 15,646 9/30/15 4,144 7,880 14,216 3/31/16 3,874 8,628 14,967 9/30/16 4,152 9,775 15,916 3/31/17 4,436 10,849 17,218 9/30/17 4,794 12,098 18,885 3/31/18 5,108 12,564 19,761 9/30/18 5,327 12,657 20,731 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 82 7 0 0 135 25 3 0 10/1/14 - 9/30/15 104 14 2 0 119 13 0 0 10/1/15 - 9/30/16 74 21 2 1 114 31 10 0 10/1/16 - 9/30/17 115 7 0 0 129 0 0 0 10/1/17 - 9/30/18 51 19 0 0 93 85 3 0 </TABLE> Page 17 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST INDXX GLOBAL AGRICULTURE ETF (FTAG) First Trust Indxx Global Agriculture ETF (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Indxx Global Agriculture Index (the "Index"). The shares of the Fund are listed and traded on The Nasdaq Stock Market LLC under the ticker symbol "FTAG." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks and/or depositary receipts that comprise the Index. The Index is owned and is developed, maintained and sponsored by Indxx, LLC. The Index is a market capitalization weighted index designed to measure the performance of companies that are directly or indirectly engaged in improving agricultural yields. The Index is comprised of farmland companies and firms involved in chemicals and fertilizers, seeds, irrigation equipment, and farm machinery. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (3/11/10) Ended (3/11/10) 9/30/18 9/30/18 to 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV -1.46% -15.03% -17.42% -55.72% -80.56% Market Price -1.55% -15.08% -17.44% -55.83% -80.61% INDEX PERFORMANCE Indxx Global Agriculture Index* -0.40% N/A N/A N/A N/A MSCI All Country World Index 9.77% 8.67% 8.89% 51.52% 107.32% MSCI All Country World Materials Index 4.62% 4.60% 2.79% 25.24% 26.56% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) * Effective on the close of business December 18, 2015, the Fund's underlying index changed from the ISE Global Platinum(TM) Index to the Indxx Global Agriculture Index. Therefore, the Fund's performance and total returns shown for the period prior to December 18, 2015, are not necessarily indicative of the performance the Fund, based on its current Index, would have generated. Since the Fund's new underlying index had an inception date of June 1, 2015, it was not in existence for all the periods disclosed. PERFORMANCE REVIEW The Fund generated a NAV return of -1.46% during the 12-month period covered by this report. During the same period, the benchmark MSCI All Country World Materials Index generated a return of 4.62%. The Materials sector was given the highest allocation in the Fund over the period with a 56.2% weighting. This sector had a 1.4% return, which limited its contribution to the Fund's return to 0.8%. The top performing industry in the Fund was the Automobile & Components industry with a 24.7% return, while the Pharmaceuticals, Biotechnology & Life Sciences industry was the Fund's worst performing industry with a -32.0% return. The Fund's currency exposure had a -2.2% impact on performance. On a relative basis, the Fund underperformed the benchmark. The Fund's holdings amongst the Pharmaceuticals, Biotechnology & Life Sciences industry created -3.9% of relative underperformance as the benchmark had no exposure to this -32.0% returning industry. The benchmark had no exposure to the well performing Automobile & Component industry, which created 0.4% of relative outperformance. ----------------------------- "Indxx" and "Indxx Global Agriculture Index" are trademarks of Indxx, LLC ("Licensor") and have been licensed for use for certain purposes by First Trust. First Trust Indxx Global Agriculture ETF is based on the Index and is not sponsored, endorsed, sold or promoted by Licensor, and Licensor makes no representation regarding the advisability of trading in such product. Page 18 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST INDXX GLOBAL AGRICULTURE ETF (FTAG) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Materials 57.96% Industrials 21.94 Health Care 10.61 Consumer Staples 6.26 Consumer Discretionary 3.23 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Bayer AG 10.61% Deere & Co. 9.93 BASF SE 9.67 DowDuPont, Inc. 9.06 Kubota Corp. 4.59 Nutrien Ltd. 4.56 Petronas Chemicals Group Bhd 3.97 Evonik Industries AG 3.66 CNH Industrial N.V. 3.57 Wilmar International Ltd. 3.31 ------ Total 62.93% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT MARCH 11, 2010 - SEPTEMBER 30, 2018 First Trust Indxx MSCI All Country MSCI All Country World Global Agriculture ETF World Index Materials Index ---------------------- ------------------ ---------------------- <S> <C> <C> <C> 3/11/10 $10,000 $10,000 $10,000 3/31/10 10,337 10,172 10,291 9/30/10 9,794 10,220 10,440 3/31/11 10,930 11,604 12,429 9/30/11 6,416 9,606 9,096 3/31/12 6,576 11,519 10,529 9/30/12 4,871 11,621 10,066 3/31/13 4,667 12,731 10,081 9/30/13 4,392 13,683 10,105 3/31/14 4,363 14,841 10,600 9/30/14 3,924 15,230 10,309 3/31/15 3,248 15,646 9,852 9/30/15 1,915 14,216 7,880 3/31/16 1,480 14,967 8,628 9/30/16 1,552 15,916 9,775 3/31/17 1,782 17,218 10,849 9/30/17 1,972 18,885 12,098 3/31/18 1,945 19,761 12,564 9/30/18 1,942 20,731 12,657 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 103 36 9 0 56 35 12 1 10/1/14 - 9/30/15 96 52 7 1 55 38 3 0 10/1/15 - 9/30/16 37 20 15 16 72 47 22 24 10/1/16 - 9/30/17 120 0 0 0 122 7 2 0 10/1/17 - 9/30/18 171 5 0 0 72 3 0 0 </TABLE> Page 19 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST BICK INDEX FUND (BICK) The First Trust BICK Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE BICK(TM) Index (the "Index"). The shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol "BICK." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the Index. The Index is developed, maintained and sponsored by Nasdaq, Inc. The Index is designed to provide a benchmark for investors interested in tracking some of the largest and most liquid public companies that are domiciled in Brazil, India, China (including Hong Kong) and South Korea that are accessible for investment by U.S. investors. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (4/12/10) Ended (4/12/10) 9/30/18 9/30/18 to 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV -6.82% 3.76% 0.10% 20.25% 0.83% Market Price -7.33% 3.95% 0.12% 21.38% 0.98% INDEX PERFORMANCE ISE BICK(TM) Index -5.62% 4.66% 0.98% 25.59% 8.64% MSCI All Country World Index 9.77% 8.67% 8.45% 51.52% 98.78% MSCI Emerging Markets Index -0.81% 3.61% 2.57% 19.42% 24.00% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of -6.82% during the 12-month period covered by this report. During the same period, the benchmark MSCI Emerging Markets Index generated a return of -0.81%. South Korean securities were the Fund's top performing securities with a 6.1% return, while Brazilian securities were the Fund's worst performing securities with a -19.9% return. Brazil was also the Fund's least contributing country with a -4.3% contribution, while South Korean securities were the Fund's top contributing country with a 0.9% contribution. On a relative basis, the Fund underperformed the benchmark. The primary cause of the underperformance was due to the Fund over allocating the poor performing Brazilian securities by 17.3%, creating -4.0% of relative drag. The relative outperformance of 0.6% was created due to the Fund over allocating and outperforming the benchmark amongst South Korean securities by 10.5% and 4.5%, respectively. ----------------------------- The Fund is not sponsored, endorsed, sold or promoted by Nasdaq, Inc., or its affiliates (Nasdaq, Inc., with its affiliates, are referred to as the "Corporations"). The Corporations' only relationship to First Trust is in the licensing of Nasdaq, Inc. and certain trade names of the Corporations and the use of the ISE Index which is determined, composed and calculated by Nasdaq, Inc. without regard to First Trust or the Fund. Page 20 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST BICK INDEX FUND (BICK) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Consumer Discretionary 18.67% Financials 18.25 Information Technology 13.75 Communication Services 10.96 Materials 9.92 Energy 8.20 Health Care 7.29 Industrials 7.05 Consumer Staples 4.08 Utilities 0.97 Real Estate 0.86 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Yatra Online, Inc. 1.94% Eros International PLC 1.92 Wipro Ltd., ADR 1.82 Vedanta Ltd., ADR 1.80 Reliance Industries Ltd., GDR 1.79 Dr. Reddy's Laboratories Ltd., ADR 1.77 Infosys Ltd., ADR 1.76 WNS (Holdings) Ltd., ADR 1.76 HDFC Bank Ltd., ADR 1.67 Larsen & Toubro Ltd., GDR 1.64 ------ Total 17.87% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 12, 2010 - SEPTEMBER 30, 2018 First Trust BICK ISE BICK(TM) MSCI All Country MSCI Emerging Index Fund Index World Index Markets Index ---------------- ------------ ---------------- ------------- <S> <C> <C> <C> <C> 4/12/10 $10,000 $10,000 $10,000 $10,000 9/30/10 10,417 10,488 9,800 10,487 3/31/11 11,231 11,311 11,127 11,486 9/30/11 7,586 7,795 9,211 8,793 3/31/12 8,996 9,139 11,045 10,475 9/30/12 8,328 8,515 11,143 10,282 3/31/13 8,480 8,665 12,207 10,656 9/30/13 8,385 8,681 13,119 10,383 3/31/14 8,808 9,127 14,231 10,527 9/30/14 9,050 9,432 14,604 10,829 3/31/15 8,497 8,920 15,003 10,572 9/30/15 6,865 7,163 13,632 8,740 3/31/16 7,383 7,773 14,352 9,300 9/30/16 8,512 8,958 15,262 10,207 3/31/17 9,234 9,764 16,510 10,901 9/30/17 10,822 11,512 18,108 12,499 3/31/18 11,613 12,333 18,948 13,600 9/30/18 10,085 10,867 19,878 12,398 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 28 1 0 0 131 82 10 0 10/1/14 - 9/30/15 38 6 0 0 116 79 13 0 10/1/15 - 9/30/16 34 0 0 0 113 97 8 1 10/1/16 - 9/30/17 65 26 0 0 51 99 10 0 10/1/17 - 9/30/18 120 37 2 0 76 14 2 0 </TABLE> Page 21 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ SMARTPHONE INDEX FUND (FONE) The First Trust Nasdaq Smartphone Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Nasdaq CTA Smartphone Index(SM) (the "Index"). The shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol "FONE." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the Index. The Index is owned by Nasdaq, Inc. (the "Index Provider"). The Index Provider and the Consumer Technology Association have jointly developed the eligibility and selection criteria and rules for the Index. The Index is designed to track the performance of companies engaged in the smartphone segment of the telecommunications and technology sectors. To be eligible for the Index, issuers of the securities must be identified as being engaged in the smartphone industry by the Consumer Technology Association. Component securities must be listed on an index-eligible global stock exchange, as determined by the Index Provider, have a minimum worldwide market capitalization of $250 million and a minimum three-month average daily dollar trading volume of $1 million. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (2/17/11) Ended (2/17/11) 9/30/18 9/30/18 to 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV 0.20% 10.49% 8.08% 64.67% 80.74% Market Price -0.30% 10.44% 8.01% 64.31% 79.79% INDEX PERFORMANCE Nasdaq CTA Smartphone Index(SM) 1.22% 11.51% 9.08% 72.38% 93.82% MSCI World Index 11.24% 9.28% 8.64% 55.87% 87.99% MSCI All Country World Information Technology Index 22.84% 19.05% 14.53% 139.14% 181.11% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of 0.20% during the 12-month period covered by this report. During the same period, the benchmark MSCI All Country World Information Technology Index generated a return of 22.84%. The Fund's holdings amongst the Semiconductors & Semiconductor Equipment industry were the top performing securities with an 11.1% return and a 2.2% contribution stemming from the industries 24.1% allocation. The heaviest allocated industry in the Fund was the Technology Hardware & Equipment industry at 39.9%. This industry had a negative return of -8.9%, which led to a -2.4% contribution to the Fund's return. The Fund's currency exposure had a -0.4% impact on performance. On a relative basis, the Fund underperformed the benchmark. The majority of the underperformance is attributable to the Fund underperforming the benchmark amongst the Technology Hardware & Equipment securities by -33.8%, creating -11.6% of relative drag. The Fund outperformed the benchmark amongst Media & Entertainment securities by 10.6%, which reversed 0.8% of the relative drag. ----------------------------- Nasdaq(R), and Nasdaq CTA Smartphone Index(SM), formerly NASDAQ OMX CEA Smartphone Index(SM), are registered trademarks and service marks of Nasdaq, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 22 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ SMARTPHONE INDEX FUND (FONE) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 69.95% Communication Services 12.40 Consumer Discretionary 8.80 Real Estate 7.12 Industrials 1.73 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Lenovo Group Ltd. 3.72% Sony Corp. 3.55 BlackBerry Ltd. 3.54 Nokia OYJ, ADR 3.34 Inventec Corp. 3.32 Apple, Inc. 3.29 Samsung Electronics Co., Ltd. 3.20 Kyocera Corp. 3.16 Flex Ltd. 3.16 Pegatron Corp. 3.08 ------ Total 33.36% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 17, 2011 - SEPTEMBER 30, 2018 First Trust Nasdaq Nasdaq CTA MSCI World MSCI All Country World Smartphone Index Fund Smartphone Index(SM) Index Information Technology Index ---------------------- -------------------- ---------- ---------------------------- <S> <C> <C> <C> <C> 2/17/11 $10,000 $10,000 $10,000 $10,000 3/31/11 9,399 9,412 9,849 9,547 9/30/11 7,503 7,595 8,251 8,390 3/31/12 9,238 9,328 9,904 10,774 9/30/12 7,805 7,925 10,032 10,566 3/31/13 9,021 9,180 11,077 10,774 9/30/13 10,975 11,245 12,059 11,756 3/31/14 12,117 12,470 13,188 13,356 9/30/14 12,748 13,187 13,530 14,502 3/31/15 13,920 14,460 13,983 15,485 9/30/15 12,194 12,706 12,842 14,328 3/31/16 13,098 13,739 13,501 15,785 9/30/16 14,585 15,322 14,300 17,605 3/31/17 16,474 17,413 15,494 19,719 9/30/17 18,041 19,153 16,898 22,884 3/31/18 18,932 20,114 17,589 25,486 9/30/18 18,076 19,382 18,797 28,111 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 139 12 0 0 86 14 1 0 10/1/14 - 9/30/15 123 4 0 0 118 7 0 0 10/1/15 - 9/30/16 19 0 0 0 164 67 3 0 10/1/16 - 9/30/17 59 0 0 0 159 32 1 0 10/1/17 - 9/30/18 61 1 0 0 166 21 2 0 </TABLE> Page 23 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ) The First Trust NASDAQ Global Auto Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ OMX Global Auto Index(SM) (the "Index"). The shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol "CARZ." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the Index. The Index is owned and was developed by Nasdaq, Inc. (the "Index Provider"). The Index Provider has contracted with Standard & Poor's Dow Jones Indices to calculate and maintain the Index. The Index is designed to track the performance of the largest and most liquid companies engaged in manufacturing of automobiles. To be eligible for the Index, component securities must be listed on an Index-eligible global stock exchange, as determined by the Index Provider, have a minimum float-adjusted worldwide market capitalization of at least $500 million and a minimum three-month average daily dollar trading volume of $1 million. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/9/11) Ended (5/9/11) 9/30/18 9/30/18 to 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV -7.57% 0.71% 4.33% 3.60% 36.80% Market Price -7.70% 0.61% 4.34% 3.11% 36.92% INDEX PERFORMANCE NASDAQ OMX Global Auto Index(SM) -6.76% 1.54% 5.31% 7.94% 46.57% MSCI World Index 11.24% 9.28% 8.88% 55.87% 87.55% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of -7.57% during the 12-month period covered by this report. During the same period, the benchmark MSCI World Index generated a return of 11.24%. Over this period the Fund was almost 100% allocated to the global Automobiles & Components securities. Japan was the heaviest allocated country in the Fund within this industry with a 34.4% weighting. Due to Japan's relatively small return of 1.3%, its contribution to the Fund's return was limited to 0.1%. French securities were the Fund's top contributing and top performing securities with a 0.5% contribution and 5.9% return. Chinese securities were the Fund's least contributing and worst performing securities with a -3.2% contribution and -29.9% return. The Fund's currency exposure had a -0.6% impact on performance. On a relative basis, the Fund underperformed the benchmark. The majority of the underperformance is attributable to the Fund over allocating the benchmark by 96.8% and underperforming the benchmark by -2.0% amongst the Automobiles & Components industry, in all creating -16.9% of relative drag. The benchmark had a 9.3% higher allocation to Banking securities, which had a -0.5% return, creating 1.0% of relative outperformance. ----------------------------- NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX Global Auto Index(SM), are the registered trademarks and service marks of Nasdaq, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 24 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Consumer Discretionary 99.47% Industrials 0.53 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Honda Motor Co., Ltd. 8.20% Toyota Motor Corp. 8.03 Daimler AG 7.84 General Motors Co. 7.52 Ford Motor Co. 7.14 Volkswagen AG (Preference Shares) 4.32 Hyundai Motor Co. 4.18 Subaru Corp. 4.14 Renault S.A. 4.03 Nissan Motor Co., Ltd. 4.01 ------ Total 59.41% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 9, 2011 - SEPTEMBER 30, 2018 First Trust NASDAQ NASDAQ OMX Global MSCI World Global Auto Index Fund Auto Index Index(SM) Index ---------------------- -------------------- ---------- <S> <C> <C> <C> 5/9/11 $10,000 $10,000 $10,000 9/30/11 7,545 7,717 8,232 3/31/12 9,324 9,459 9,881 9/30/12 8,282 8,439 10,009 3/31/13 10,210 10,402 11,052 9/30/13 13,205 13,581 12,032 3/31/14 13,593 14,039 13,158 9/30/14 13,085 13,556 13,499 3/31/15 14,034 14,601 13,951 9/30/15 11,727 12,208 12,813 3/31/16 11,826 12,418 13,470 9/30/16 11,990 12,550 14,267 3/31/17 13,091 13,851 15,458 9/30/17 14,803 15,719 16,858 3/31/18 15,201 16,109 17,547 9/30/18 13,682 14,656 18,752 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 133 17 0 0 88 14 0 0 10/1/14 - 9/30/15 90 12 1 1 129 19 0 0 10/1/15 - 9/30/16 78 7 2 0 118 42 5 1 10/1/16 - 9/30/17 91 9 0 0 124 26 1 0 10/1/17 - 9/30/18 120 12 1 0 113 5 0 0 </TABLE> Page 25 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CLOUD COMPUTING ETF (SKYY) The First Trust Cloud Computing ETF (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE Cloud Computing Index(TM) (the "Index"). The shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol "SKYY." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts representing securities in the Index. The Index is developed, maintained and sponsored by Nasdaq, Inc. To be eligible for the Index, a security must be actively engaged in a business activity supporting or utilizing the cloud computing space. Component securities must have a market capitalization of at least $100 million. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (7/5/11) Ended (7/5/11) 9/30/18 9/30/18 to 9/30/18 9/30/18 to 9/30/18 <S> <C> <C> <C> <C> <C> FUND PERFORMANCE NAV 35.80% 18.54% 15.62% 134.08% 185.90% Market Price 35.94% 18.55% 15.63% 134.20% 186.05% INDEX PERFORMANCE ISE Cloud Computing Index(TM) 36.71% 19.10% 16.21% 139.65% 196.63% S&P 500(R) Index 17.91% 13.95% 13.73% 92.10% 153.75% S&P Composite 1500 Information Technology Index 30.40% 21.80% 18.46% 168.05% 240.89% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of 35.80% during the 12-month period covered by this report. During the same period, the benchmark S&P 500(R) Index generated a return of 17.91%. The Fund's top allocated sector over the period was the Information Technology sector. This sector was given a 75.6% allocation and contributed 26.0% to the Fund's return, stemming from its 34.0% return. The Consumer Discretionary sector, represented solely by Amazon.com, Inc., was the Fund's top performing sector with a 108.5% return. The Fund's least contributing, worst performer, and smallest allocated sector was the Real Estate sector, represented solely by Equinix, Inc. This security had a 4.1% allocation, -0.9% return, and -0.01% contribution to the Fund's return. On a relative basis, the Fund outperformed the benchmark. The primary cause of the outperformance is attributable to the Fund overweighting the well performing Information Technology sector by 55.9% compared to the benchmark, creating 7.9% of relative outperformance. The outperformance of 0.4% was reversed due to the Fund underperforming the benchmark amongst Real Estate securities by -5.9%. ----------------------------- The Fund is not sponsored, endorsed, sold or promoted by Nasdaq, Inc., or its affiliates (Nasdaq, Inc., with its affiliates, are referred to as the "Corporations"). The Corporations' only relationship to First Trust is in the licensing of Nasdaq, Inc. and certain trade names of the Corporations and the use of the ISE Index which is determined, composed and calculated by Nasdaq, Inc. without regard to First Trust or the Fund. Page 26 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CLOUD COMPUTING ETF (SKYY) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 72.57% Communication Services 17.75 Consumer Discretionary 5.13 Real Estate 4.55 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- NetApp, Inc. 5.24% salesforce.com, Inc. 5.13 Amazon.com, Inc. 5.13 F5 Networks, Inc. 4.81 Cisco Systems, Inc. 4.75 VMware, Inc., Class A 4.73 Juniper Networks, Inc. 4.69 Oracle Corp. 4.60 Alphabet, Inc., Class A 4.58 Open Text Corp. 4.55 ------ Total 48.21% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT JULY 5, 2011 - SEPTEMBER 30, 2018 First Trust Cloud ISE Cloud S&P 500(R) S&P Composite 1500 Computing ETF Computing Index(TM) Index Information Technology Index --------------------- ----------------------- ---------- ---------------------------- <S> <C> <C> <C> <C> 7/5/11 $10,000 $10,000 $10,000 $10,000 9/30/11 7,902 7,909 8,501 8,886 3/31/12 10,604 10,641 10,702 11,739 9/30/12 9,864 9,934 11,068 11,695 3/31/13 10,531 10,640 12,196 11,682 9/30/13 12,214 12,376 13,209 12,718 3/31/14 13,390 13,612 14,861 14,655 9/30/14 13,581 13,852 15,815 16,153 3/31/15 14,551 14,885 16,753 17,253 9/30/15 13,994 14,354 15,718 16,547 3/31/16 14,789 15,247 17,052 18,475 9/30/16 17,114 17,697 18,143 20,324 3/31/17 19,392 19,930 19,979 23,173 9/30/17 21,052 21,701 21,519 26,144 3/31/18 24,370 25,195 22,776 29,394 9/30/18 28,591 29,662 25,375 34,091 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period October 1, 2013 through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 10/1/13 - 9/30/14 191 18 0 0 38 5 0 0 10/1/14 - 9/30/15 193 9 0 0 48 2 0 0 10/1/15 - 9/30/16 146 1 0 0 106 0 0 0 10/1/16 - 9/30/17 188 0 0 0 62 1 0 0 10/1/17 - 9/30/18 176 1 0 0 74 0 0 0 </TABLE> Page 27 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST INTERNATIONAL IPO ETF (FPXI) First Trust International IPO ETF (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an index called the IPOX International Index (the "Index"). The shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol "FPXI." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks and/or depositary receipts that comprise the Index. The Index is owned and is developed, maintained and sponsored by IPOX(R) Schuster LLC (the "Index Provider"). The Index is a market-cap weighted portfolio measuring the performance of the top 50 non-U.S. companies, including companies domiciled in emerging markets, ranked quarterly by market capitalization in the IPOX(R) Global Composite Index. The Index includes the 50 largest and typically most liquid initial public offerings ("IPOs") and spin-offs of companies legally domiciled outside the United States that trade on an accessible global stock exchange. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (11/4/14) Inception (11/4/14) 9/30/18 to 9/30/18 to 9/30/18 <S> <C> <C> <C> FUND PERFORMANCE NAV 3.35% 5.56% 23.51% Market Price 2.87% 5.57% 23.58% INDEX PERFORMANCE IPOX International Index 4.17% 6.34% 27.12% MSCI World ex USA Index 2.67% 4.86% 20.35% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of 3.35% during the 12-month period covered by this report. During the same period, the benchmark MSCI World ex USA Index generated a return of 2.67%. The Financials sector was the highest allocated sector in the Fund over the period with a 20.5% allocation. The sector had a 1.4% return in the Fund and contributed 0.2% to the Fund's return. The Fund's top contributing sector was the Industrials sector with a 14.5% allocation, 11.9% return, and 1.8% contribution. The Fund's least contributing sector was the Communication Services sector with a 2.3% allocation, -61.8% return, and -2.9% contribution. The Fund's currency exposure had a -1.6% impact on performance. On a relative basis, the Fund outperformed the benchmark. The Consumer Discretionary and Industrials sectors each created 1.2% of outperformance as the Fund outperformed the benchmark within these two sectors by 9.8% and 7.4%, respectively. The Fund underperformed the benchmark amongst the Communication Services sector by -8.1%, creating -2.9% of relative drag. ----------------------------- IPOX(R) and IPOX International Index are registered international trademarks and service marks of IPOX Schuster LLC and have been licensed for use for certain purposes by First Trust. Page 28 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST INTERNATIONAL IPO ETF (FPXI) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Financials 17.35% Industrials 16.62 Information Technology 16.46 Consumer Discretionary 14.46 Health Care 11.03 Real Estate 9.30 Utilities 8.29 Communication Services 3.24 Materials 2.31 Consumer Staples 0.94 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Recruit Holdings Co., Ltd. 8.20% Japan Post Holdings Co., Ltd. 7.76 Siemens Healthineers AG 6.37 China Vanke Co., Ltd., Class H 5.29 Orsted A/S 5.17 Ferrari N.V. 4.89 Xiaomi Corp., Class B 4.56 CK Asset Holdings Ltd. 4.01 Postal Savings Bank of China Co., Ltd., Class H 3.70 Adyen N.V. 3.48 ------ Total 53.43% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT NOVEMBER 4, 2014 - SEPTEMBER 30, 2018 First Trust International IPOX International MSCI World iPO ETF Index ex USA Index ------------------------- ------------------ ----------- <S> <C> <C> <C> 11/4/14 $10,000 $10,000 $10,000 3/31/15 9,798 9,813 10,252 9/30/15 8,526 8,522 9,212 3/31/16 8,864 8,954 9,386 9/30/16 9,432 9,523 9,872 3/31/17 9,913 10,072 10,506 9/30/17 11,952 12,204 11,722 3/31/18 12,949 13,217 11,951 9/30/18 12,352 12,713 12,036 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period November 5, 2014 (commencement of trading) through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 11/5/14 - 9/30/15 90 11 1 0 117 8 0 1 10/1/15 - 9/30/16 109 30 0 0 86 28 0 0 10/1/16 - 9/30/17 138 32 0 0 63 17 1 0 10/1/17 - 9/30/18 152 27 1 0 67 4 0 0 </TABLE> Page 29 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ CYBERSECURITY ETF (CIBR) The First Trust Nasdaq Cybersecurity ETF (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Nasdaq CTA Cybersecurity Index(SM) (the "Index"). The shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol "CIBR." The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks or in depositary receipts that comprise the Index. The Index is owned by Nasdaq, Inc. (the "Index Provider"). The Index Provider and the Consumer Technology Association ("CTA") have jointly developed the eligibility and selection criteria and rules for the Index. The Index will include securities of companies classified as "cybersecurity" companies by the CTA. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (7/6/15) Inception (7/6/15) 9/30/18 to 9/30/18 to 9/30/18 <S> <C> <C> <C> FUND PERFORMANCE NAV 30.49% 12.11% 44.74% Market Price 30.93% 12.19% 45.10% INDEX PERFORMANCE Nasdaq CTA Cybersecurity Index(SM) 31.32% 12.90% 48.09% S&P 500(R) Index 17.91% 13.49% 50.59% S&P Composite 1500 Information Technology Index 30.40% 23.25% 96.70% --------------------------------------------------------------------------------------------------------------------------- </TABLE> (See Notes to Fund Performance Overview on page 32.) PERFORMANCE REVIEW The Fund generated a NAV return of 30.49% during the 12-month period covered by this report. During the same period, the benchmark S&P Composite 1500 Information Technology Index generated a return of 30.40%. The Software industry was given the largest allocation in the Fund over the period with a 52.9% weighting. This industry had a 28.4% return and contributed 15.5% to the Fund's return, the most among all industries. The worst performing and least contributing industry was the Electronic Equipment Instruments & Components industry with a -15.5% return and -0.5% contribution. The Fund's currency exposure had a -0.4% impact on performance. On a relative basis, the Fund outperformed the benchmark. The majority of the outperformance is attributable to the Fund having no exposure to the relatively poor performing Interactive Media & Services securities, creating 3.1% of relative outperformance. The Fund also outperformed the benchmark amongst the Communications Equipment industry, which created another 2.4% of relative outperformance. The outperformance was reversed by 4.2% due to the Fund underperforming the benchmark amongst Software securities by -19.3%. ----------------------------- Nasdaq(R), and Nasdaq CTA Cybersecurity Index(SM), formerly Nasdaq CEA Cybersecurity Index(SM), are registered trademarks and service marks of Nasdaq, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 30 <PAGE> -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ CYBERSECURITY ETF (CIBR) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 86.41% Industrials 13.59 ------ Total 100.00% ====== ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Symantec Corp. 6.26% Raytheon Co. 6.14 Cisco Systems, Inc. 6.04 Palo Alto Networks, Inc. 5.78 Splunk, Inc. 5.59 Fortinet, Inc. 3.27 Tenable Holdings, Inc. 3.26 CyberArk Software Ltd. 3.14 F5 Networks, Inc. 3.13 Juniper Networks, Inc. 3.13 ------ Total 45.74% ====== <TABLE> <CAPTION> PERFORMANCE OF A $10,000 INITIAL INVESTMENT JULY 6, 2015 - SEPTEMBER 30, 2018 First Trust Nasdaq Nasdaq CTA S&P 500(R) S&P Composite 1500 Cybersecurity ETF Cybersecurity Index(SM) Index Information Technology Index --------------------- ----------------------- ---------- ---------------------------- <S> <C> <C> <C> <C> 7/6/15 $10,000 $10,000 $10,000 $10,000 9/30/15 8,575 8,585 9,328 9,547 3/31/16 8,595 8,645 10,120 10,659 9/30/16 10,018 10,113 10,768 11,726 3/31/17 10,993 11,137 11,858 13,370 9/30/17 11,093 11,276 12,772 15,084 3/31/18 12,713 12,943 13,518 16,959 9/30/18 14,475 14,808 15,060 19,669 </TABLE> Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2018 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period July 7, 2015 (commencement of trading) through September 30, 2018. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. <TABLE> <CAPTION> NUMBER OF DAYS BID/ASK MIDPOINT NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV BELOW NAV ---------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%- FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00% 7/7/15 - 9/30/15 49 7 1 0 4 0 0 0 10/1/15 - 9/30/16 140 0 0 0 113 0 0 0 10/1/16 - 9/30/17 228 2 0 0 21 0 0 0 10/1/17 - 9/30/18 222 1 0 0 28 0 0 0 </TABLE> Page 31 <PAGE> -------------------------------------------------------------------------------- NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- Total returns for the periods since inception are calculated from the inception date of each Fund. "Average Annual Total Returns" represent the average annual change in value of an investment over the periods indicated. "Cumulative Total Returns" represent the total change in value of an investment over the periods indicated. For certain Funds, the total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor. Each Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund are listed for trading as of the time that the Fund's NAV is calculated. Since shares of each Fund did not trade in the secondary market until after the Fund's inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund's past performance is no guarantee of future performance. Page 32 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II UNDERSTANDING YOUR FUND EXPENSES SEPTEMBER 30, 2018 (UNAUDITED) As a shareholder of First Trust STOXX(R) European Select Dividend Index Fund, First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund, First Trust Dow Jones Global Select Dividend Index Fund, First Trust Global Wind Energy ETF, First Trust Global Engineering and Construction ETF, First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund, First Trust Indxx Global Natural Resources Income ETF, First Trust Indxx Global Agriculture ETF, First Trust BICK Index Fund, First Trust Nasdaq Smartphone Index Fund, First Trust NASDAQ Global Auto Index Fund, First Trust Cloud Computing ETF, First Trust International IPO ETF or First Trust Nasdaq Cybersecurity ETF (each a "Fund" and collectively, the "Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs (in U.S. dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended September 30, 2018. ACTUAL EXPENSES The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Six-Month Period" to estimate the expenses you paid on your account during this six-month period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. <TABLE> <CAPTION> ------------------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO BEGINNING ENDING BASED ON THE EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE APRIL 1, 2018 SEPTEMBER 30, 2018 PERIOD (a) SIX-MONTH PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD) Actual $1,000.00 $ 982.80 0.57% $2.83 Hypothetical (5% return before expenses) $1,000.00 $1,022.21 0.57% $2.89 FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) Actual $1,000.00 $1,049.30 0.60% $3.08 Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04 FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD) Actual $1,000.00 $1,013.30 0.58% $2.93 Hypothetical (5% return before expenses) $1,000.00 $1,022.16 0.58% $2.94 FIRST TRUST GLOBAL WIND ENERGY ETF (FAN) Actual $1,000.00 $ 953.40 0.60% $2.94 Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04 FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF (FLM) Actual $1,000.00 $1,009.60 0.70% $3.53 Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55 </TABLE> Page 33 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) SEPTEMBER 30, 2018 (UNAUDITED) <TABLE> <CAPTION> ------------------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO BEGINNING ENDING BASED ON THE EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE APRIL 1, 2018 SEPTEMBER 30, 2018 PERIOD (a) SIX-MONTH PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID) Actual $1,000.00 $ 969.80 0.70% $3.46 Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55 FIRST TRUST INDXX GLOBAL NATURAL RESOURCES INCOME ETF (FTRI) Actual $1,000.00 $1,042.80 0.70% $3.58 Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55 FIRST TRUST INDXX GLOBAL AGRICULTURE ETF (FTAG) Actual $1,000.00 $ 999.10 0.70% $3.51 Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55 FIRST TRUST BICK INDEX FUND (BICK) Actual $1,000.00 $ 868.40 0.64% $3.00 Hypothetical (5% return before expenses) $1,000.00 $1,021.86 0.64% $3.24 FIRST TRUST NASDAQ SMARTPHONE INDEX FUND (FONE) Actual $1,000.00 $ 954.80 0.70% $3.43 Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55 FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ) Actual $1,000.00 $ 900.10 0.70% $3.33 Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55 FIRST TRUST CLOUD COMPUTING ETF (SKYY) Actual $1,000.00 $1,173.20 0.60% $3.27 Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04 FIRST TRUST INTERNATIONAL IPO ETF (FPXI) Actual $1,000.00 $ 953.90 0.70% $3.43 Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55 FIRST TRUST NASDAQ CYBERSECURITY ETF (CIBR) Actual $1,000.00 $1,138.60 0.60% $3.22 Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04 </TABLE> (a) These expense ratios reflect expense caps for certain Funds. See Note 3 in the Notes to Financial Statements. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (April 1, 2018 through September 30, 2018), multiplied by 183/365 (to reflect the six-month period). Page 34 <PAGE> FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 99.1% BELGIUM -- 2.4% 461,569 Proximus S.A., DP $ 11,028,910 -------------- FINLAND -- 4.0% 720,660 Fortum OYJ 18,064,821 -------------- FRANCE -- 16.8% 453,051 CNP Assurances 10,920,060 128,557 Covivio 13,396,174 355,915 Klepierre S.A. 12,616,059 298,435 SCOR SE 13,859,908 219,353 Societe Generale S.A. 9,415,505 250,566 TOTAL S.A. 16,244,941 -------------- 76,452,647 -------------- GERMANY -- 7.1% 50,030 Allianz SE 11,152,759 229,495 Deutsche Post AG 8,182,832 57,802 Muenchener Rueckversicherungs- Gesellschaft AG in Muenchen 12,801,416 -------------- 32,137,007 -------------- ITALY -- 8.3% 765,700 Assicurazioni Generali S.p.A. 13,228,548 4,918,365 Intesa Sanpaolo S.p.A. 12,568,730 2,888,847 Snam S.p.A. 12,037,840 -------------- 37,835,118 -------------- MULTI-NATIONAL -- 2.8% 63,356 Unibail-Rodamco-Westfield 12,741,964 -------------- PORTUGAL -- 4.5% 5,503,859 EDP-Energias de Portugal S.A. 20,308,217 -------------- SPAIN -- 1.9% 1,732,838 Banco Santander S.A. 8,722,636 -------------- SWEDEN -- 3.2% 1,317,181 Skandinaviska Enskilda Banken AB, Class A 14,708,131 -------------- SWITZERLAND -- 10.9% 166,572 Swiss Prime Site AG 14,197,827 126,174 Swiss Re AG 11,648,018 19,930 Swisscom AG 9,045,060 45,828 Zurich Insurance Group AG 14,485,272 -------------- 49,376,177 -------------- UNITED KINGDOM -- 37.2% 244,052 AstraZeneca PLC 18,968,250 1,764,030 BAE Systems PLC 14,480,672 1,254,489 GlaxoSmithKline PLC 25,128,369 4,277,499 J Sainsbury PLC 17,941,388 2,101,134 National Grid PLC 21,673,541 708,764 Royal Dutch Shell PLC, Class B 24,841,198 1,667,702 SSE PLC 24,910,540 2,322,047 United Utilities Group PLC 21,307,071 -------------- 169,251,029 -------------- TOTAL COMMON STOCKS -- 99.1% 450,626,657 (Cost $445,132,141) -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- MONEY MARKET FUNDS -- 0.3% 1,548,453 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 1.93% (b) $ 1,548,453 (Cost $1,548,453) -------------- TOTAL INVESTMENTS -- 99.4% 452,175,110 (Cost $446,680,594) (c) NET OTHER ASSETS AND LIABILITIES -- 0.6% 2,648,844 -------------- NET ASSETS -- 100.0% $ 454,823,954 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) Rate shown reflects yield as of September 30, 2018. (c) Aggregate cost for federal income tax purposes is $450,879,892. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $33,645,985 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $32,350,767. The net unrealized appreciation was $1,295,218. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 450,626,657 $ -- $ -- Money Market Funds 1,548,453 -- -- ---------------------------------------------- Total Investments $ 452,175,110 $ -- $ -- ============================================== * See Portfolio of Investments for country breakout. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- Euro 48.1% British Pound Sterling 37.4 Swiss Franc 10.9 Swedish Krona 3.3 United States Dollar 0.3 ------ Total 100.0% ====== See Notes to Financial Statements Page 35 <PAGE> FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 98.9% AUSTRALIA -- 4.6% 196,196 BGP Holdings PLC (b) (c) (d) $ 0 14,745 BWP Trust 35,599 10,135 Charter Hall Retail REIT 31,063 45,446 Cromwell Property Group 35,150 30,850 Dexus 235,488 53,572 Goodman Group 401,187 54,740 GPT Group (The) 206,154 16,525 Investa Office Fund 65,937 112,423 Mirvac Group 195,849 155,021 Scentre Group 444,867 22,721 Shopping Centres Australasia Property Group 39,417 73,768 Stockland 221,292 97,166 Vicinity Centres 184,020 -------------- 2,096,023 -------------- AUSTRIA -- 0.2% 2,092 CA Immobilien Anlagen AG 74,762 -------------- BELGIUM -- 0.7% 552 Aedifica S.A. 49,798 585 Befimmo S.A. 33,383 674 Cofinimmo S.A. 84,046 514 Intervest Offices & Warehouses N.V. 13,666 61 Leasinvest Real Estate S.C.A. 6,360 246 Montea S.C.A 16,109 199 Retail Estates N.V. 17,074 522 Warehouses De Pauw C.V.A. 68,728 66 Wereldhave Belgium N.V. 6,774 313 Xior Student Housing N.V. 14,573 -------------- 310,511 -------------- BERMUDA -- 0.5% 35,422 Hongkong Land Holdings Ltd. 234,494 -------------- CANADA -- 2.9% 3,041 Allied Properties Real Estate Investment Trust 101,473 4,148 Artis Real Estate Investment Trust 37,734 1,150 Boardwalk Real Estate Investment Trust 44,668 4,355 Canadian Apartment Properties REIT 160,794 6,381 Chartwell Retirement Residences 72,324 6,915 Choice Properties Real Estate Investment Trust 64,618 5,491 Cominar Real Estate Investment Trust 49,568 2,658 Crombie Real Estate Investment Trust 26,772 5,416 Dream Global Real Estate Investment Trust 62,267 1,515 Dream Office Real Estate Investment Trust 28,373 4,688 First Capital Realty, Inc. 70,775 1,391 Granite Real Estate Investment Trust 59,737 SHARES DESCRIPTION VALUE ------------------------------------------------------------- CANADA (CONTINUED) 8,658 H&R Real Estate Investment Trust $ 133,190 2,965 InterRent Real Estate Investment Trust 26,972 2,549 Killam Apartment Real Estate Investment Trust 31,832 1,429 Northview Apartment Real Estate Investment Trust 28,367 2,711 NorthWest Healthcare Properties Real Estate Investment Trust 23,528 9,419 RioCan Real Estate Investment Trust 179,972 3,570 SmartCentres Real Estate Investment Trust 84,327 -------------- 1,287,291 -------------- CAYMAN ISLANDS -- 1.9% 81,816 CK Asset Holdings Ltd. 614,011 37,006 Wharf Real Estate Investment Co., Ltd. 238,722 -------------- 852,733 -------------- FINLAND -- 0.2% 11,631 Citycon OYJ 24,254 2,628 Kojamo OYJ (c) 28,730 4,271 Technopolis OYJ 23,133 -------------- 76,117 -------------- FRANCE -- 1.6% 931 Carmila S.A. 23,727 1,084 Covivio 112,957 1,583 Gecina S.A. 264,296 972 ICADE 89,832 6,055 Klepierre S.A. 214,630 1,241 Mercialys S.A. 19,999 -------------- 725,441 -------------- GERMANY -- 4.1% 878 ADLER Real Estate AG 15,495 4,794 alstria office REIT-AG 71,135 1,548 Deutsche EuroShop AG 50,109 10,757 Deutsche Wohnen SE 516,062 1,343 DIC Asset AG 14,782 2,301 Hamborner REIT AG 24,311 1,916 LEG Immobilien AG 227,462 3,825 TAG Immobilien AG 91,041 2,572 TLG Immobilien AG 67,130 15,713 Vonovia SE 767,689 -------------- 1,845,216 -------------- GUERNSEY -- 0.1% 7,269 F&C UK Real Estate Investment Ltd. 9,058 9,632 Regional REIT Ltd. (e) 12,216 15,712 Schroder Real Estate Investment Trust Ltd. 12,267 28,116 Sirius Real Estate Ltd. 22,794 12,215 Standard Life Investment Property Income Trust Ltd. 14,361 -------------- 70,696 -------------- Page 36 See Notes to Financial Statements <PAGE> FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) (CONTINUED) HONG KONG -- 5.2% 58,680 Champion REIT $ 41,077 61,022 Hang Lung Properties Ltd. 119,264 36,102 Henderson Land Development Co., Ltd. 181,470 18,644 Hysan Development Co., Ltd. 94,192 65,340 Link REIT 643,105 173,572 New World Development Co., Ltd. 236,799 92,850 Sino Land Co., Ltd. 159,171 43,089 Sun Hung Kai Properties Ltd. 627,482 31,984 Swire Properties Ltd. 121,140 37,006 Wharf Holdings (The) Ltd. 100,689 -------------- 2,324,389 -------------- IRELAND -- 0.2% 20,848 Green REIT PLC 36,550 21,003 Hibernia REIT PLC 34,628 11,020 Irish Residential Properties REIT PLC 18,911 -------------- 90,089 -------------- ISLE OF MAN -- 0.0% 38,454 RDI REIT PLC 16,540 -------------- ISRAEL -- 0.1% 1,109 Azrieli Group Ltd. 56,953 -------------- ITALY -- 0.1% 30,870 Beni Stabili S.p.A. SIIQ 26,971 1,477 Immobiliare Grande Distribuzione SIIQ S.p.A. 11,349 -------------- 38,320 -------------- JAPAN -- 10.8% 19 Activia Properties, Inc. 82,274 38 Advance Residence Investment Corp. 97,057 3,627 AEON Mall Co., Ltd. 62,312 45 AEON REIT Investment Corp. 48,359 16 Comforia Residential REIT, Inc. 37,655 53 Daiwa House REIT Investment Corp. 121,235 8 Daiwa Office Investment Corp. 48,231 13 Frontier Real Estate Investment Corp. 50,629 22 Fukuoka REIT Corp. 34,040 102 GLP J-REIT 99,199 10,800 Hulic Co., Ltd. 105,985 30 Hulic REIT, Inc. 43,619 47 Industrial & Infrastructure Fund Investment Corp. 47,405 254 Invesco Office J-Reit, Inc. 36,238 138 Invincible Investment Corp. 57,692 36 Japan Excellent, Inc. 47,717 122 Japan Hotel REIT Investment Corp. 88,800 26 Japan Logistics Fund, Inc. 51,144 26 Japan Prime Realty Investment Corp. 92,677 SHARES DESCRIPTION VALUE ------------------------------------------------------------- JAPAN (CONTINUED) 39 Japan Real Estate Investment Corp. $ 204,577 45 Japan Rental Housing Investments, Inc. 35,566 79 Japan Retail Fund Investment Corp. 143,301 11 Kenedix Office Investment Corp. 70,190 26 Kenedix Residential Next Investment Corp. 39,794 15 Kenedix Retail REIT Corp. 32,120 46 MCUBS MidCity Investment Corp. 34,980 35,830 Mitsubishi Estate Co., Ltd. 609,255 28,681 Mitsui Fudosan Co., Ltd. 678,782 47 Mori Hills REIT Investment Corp. 59,732 30 Mori Trust Sogo REIT, Inc. 42,774 13 Nippon Accommodations Fund, Inc. 57,895 38 Nippon Building Fund, Inc. 219,732 57 Nippon Prologis REIT, Inc. 112,826 13 NIPPON REIT Investment Corp. 42,048 3,500 Nomura Real Estate Holdings, Inc. 70,665 125 Nomura Real Estate Master Fund, Inc. 170,745 3,252 NTT Urban Development Corp. 37,266 80 Orix JREIT, Inc. 124,908 38 Premier Investment Corp. 39,933 107 Sekisui House REIT, Inc. 67,711 12,744 Sumitomo Realty & Development Co., Ltd. 457,627 6,187 Tokyo Tatemono Co., Ltd. 75,473 27 Tokyu REIT, Inc. 37,285 88 United Urban Investment Corp. 138,095 -------------- 4,855,548 -------------- JERSEY -- 0.1% 2,600 Phoenix Spree Deutschland Ltd. 12,606 10,276 Target Healthcare REIT Ltd. 15,336 -------------- 27,942 -------------- LUXEMBOURG -- 0.7% 883 ADO Properties S.A. (e) 52,901 19,329 Aroundtown S.A. 171,905 3,336 Grand City Properties S.A. 86,451 -------------- 311,257 -------------- MULTI-NATIONAL -- 1.8% 4,074 Unibail-Rodamco-Westfield 819,350 -------------- NETHERLANDS -- 0.3% 1,446 Eurocommercial Properties N.V. 52,952 529 NSI N.V. 21,773 551 Vastned Retail N.V. 20,983 1,221 Wereldhave N.V. 42,884 -------------- 138,592 -------------- NEW ZEALAND -- 0.1% 43,064 Kiwi Property Group Ltd. 39,677 -------------- NORWAY -- 0.1% 3,313 Entra ASA (e) 47,627 -------------- See Notes to Financial Statements Page 37 <PAGE> FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) (CONTINUED) SINGAPORE -- 2.4% 72,100 Ascendas Real Estate Investment Trust $ 139,237 71,290 CapitaLand Commercial Trust 92,825 76,130 CapitaLand Ltd. 187,673 69,883 CapitaLand Mall Trust 113,485 23,600 CDL Hospitality Trusts 27,621 14,200 City Developments Ltd. 94,629 40,222 Fortune Real Estate Investment Trust 47,732 59,500 Keppel REIT 51,794 57,721 Mapletree Commercial Trust 67,979 39,800 Mapletree Industrial Trust 57,645 62,053 Mapletree Logistics Trust 55,832 59,097 Suntec Real Estate Investment Trust 83,433 14,900 UOL Group Ltd. 75,097 -------------- 1,094,982 -------------- SPAIN -- 0.6% 9,183 Inmobiliaria Colonial Socimi S.A. 95,424 2,035 Lar Espana Real Estate Socimi S.A. 20,721 10,107 Merlin Properties Socimi S.A. 137,121 -------------- 253,266 -------------- SWEDEN -- 1.6% 8,165 Castellum AB 146,168 489 Catena AB 10,949 1,084 D Carnegie & Co. AB (c) 20,759 2,550 Dios Fastigheter AB 16,326 7,992 Fabege AB 110,734 2,937 Fastighets AB Balder, Class B (c) 81,493 4,833 Hemfosa Fastigheter AB 66,616 3,316 Hufvudstaden AB, Class A 50,445 15,875 Klovern AB, Class B 20,863 5,716 Kungsleden AB 42,062 2,272 Pandox AB 40,698 1,050 Victoria Park AB, Class B 4,289 4,952 Wallenstam AB, Class B 46,916 4,018 Wihlborgs Fastigheter AB 48,339 -------------- 706,657 -------------- SWITZERLAND -- 0.9% 426 Allreal Holding AG 68,367 76 Hiag Immobilien Holding AG 9,680 185 Mobimo Holding AG 43,733 1,188 PSP Swiss Property AG 115,060 2,275 Swiss Prime Site AG 193,910 -------------- 430,750 -------------- UNITED KINGDOM -- 4.3% 71,026 Assura PLC 50,083 4,417 Big Yellow Group PLC 52,851 29,717 British Land (The) Co. PLC 238,907 22,223 Capital & Counties Properties PLC 77,135 16,458 Capital & Regional PLC 9,224 10,612 Civitas Social Housing PLC 15,215 10,819 Custodian REIT PLC 17,063 SHARES DESCRIPTION VALUE ------------------------------------------------------------- UNITED KINGDOM (CONTINUED) 137 Daejan Holdings PLC $ 10,464 3,036 Derwent London PLC 113,056 17,763 Empiric Student Property PLC 22,296 11,673 GCP Student Living PLC 22,639 12,420 Grainger PLC 48,565 8,517 Great Portland Estates PLC 74,278 24,067 Hammerson PLC 143,263 12,188 Hansteen Holdings PLC 15,409 2,988 Helical PLC 12,891 26,847 Intu Properties PLC 53,924 21,592 Land Securities Group PLC 248,617 19,476 LondonMetric Property PLC 45,135 5,962 LXI REIT PLC 9,014 9,060 NewRiver REIT PLC 30,467 21,735 Primary Health Properties PLC 32,239 6,187 Safestore Holdings PLC 42,014 30,543 Segro PLC 253,908 6,953 Shaftesbury PLC 82,062 6,060 Triple Point Social Housing REIT PLC (e) 8,451 44,637 Tritax Big Box REIT PLC 85,816 7,871 UNITE Group (The) PLC 91,614 4,027 Workspace Group PLC 51,543 -------------- 1,958,143 -------------- UNITED STATES -- 52.8% 2,421 Acadia Realty Trust 67,861 907 Agree Realty Corp. 48,180 64 Alexander's, Inc. 21,971 3,162 Alexandria Real Estate Equities, Inc. 397,748 1,157 American Assets Trust, Inc. 43,144 4,118 American Campus Communities, Inc. 169,497 7,817 American Homes 4 Rent, Class A 171,114 2,594 Americold Realty Trust 64,902 4,721 Apartment Investment & Management Co., Class A 208,338 6,549 Apple Hospitality REIT, Inc. 114,542 2,554 Ashford Hospitality Trust, Inc. 16,320 4,177 AvalonBay Communities, Inc. 756,663 4,673 Boston Properties, Inc. 575,200 5,309 Brandywine Realty Trust 83,457 9,120 Brixmor Property Group, Inc. 159,691 4,725 Brookfield Property REIT, Inc., Class A 98,894 2,685 Camden Property Trust 251,235 2,416 CareTrust REIT, Inc. 42,787 5,090 CBL & Associates Properties, Inc. 20,309 1,360 Chatham Lodging Trust 28,410 1,783 Chesapeake Lodging Trust 57,181 14,723 Colony Capital, Inc. 89,663 3,576 Columbia Property Trust, Inc. 84,537 3,120 Corporate Office Properties Trust 93,070 12,640 Cousins Properties, Inc. 112,370 5,605 CubeSmart 159,911 2,963 CyrusOne, Inc. 187,854 Page 38 See Notes to Financial Statements <PAGE> FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) (CONTINUED) UNITED STATES (CONTINUED) 6,231 DiamondRock Hospitality Co. $ 72,716 6,219 Digital Realty Trust, Inc. 699,513 4,855 Douglas Emmett, Inc. 183,131 10,788 Duke Realty Corp. 306,056 1,819 Easterly Government Properties, Inc. 35,234 1,057 EastGroup Properties, Inc. 101,070 4,137 Empire State Realty Trust, Inc., Class A 68,716 2,229 EPR Properties 152,486 3,550 Equity Commonwealth (c) 113,919 2,559 Equity LifeStyle Properties, Inc. 246,816 10,859 Equity Residential 719,517 1,989 Essex Property Trust, Inc. 490,706 3,690 Extra Space Storage, Inc. 319,702 2,203 Federal Realty Investment Trust 278,613 3,744 First Industrial Realty Trust, Inc. 117,562 6,437 Forest City Realty Trust, Inc., Class A 161,504 2,036 Four Corners Property Trust, Inc. 52,305 3,134 Franklin Street Properties Corp. 25,041 6,095 Gaming and Leisure Properties, Inc. 214,849 984 Getty Realty Corp. 28,103 2,158 Global Net Lease, Inc. 44,994 2,967 Government Properties Income Trust 33,497 4,820 Gramercy Property Trust 132,261 14,227 HCP, Inc. 374,455 3,727 Healthcare Realty Trust, Inc. 109,052 6,235 Healthcare Trust of America, Inc., Class A 166,287 1,070 Hersha Hospitality Trust 24,257 3,073 Highwoods Properties, Inc. 145,230 4,920 Hospitality Properties Trust 141,893 22,152 Host Hotels & Resorts, Inc. 467,407 4,660 Hudson Pacific Properties, Inc. 152,475 2,622 Independence Realty Trust, Inc. 27,610 3,604 Investors Real Estate Trust 21,552 9,032 Invitation Homes, Inc. 206,923 3,163 JBG SMITH Properties 116,493 3,766 Kennedy-Wilson Holdings, Inc. 80,969 2,930 Kilroy Realty Corp. 210,052 12,294 Kimco Realty Corp. 205,802 2,487 Kite Realty Group Trust 41,409 3,330 LaSalle Hotel Properties 115,185 6,476 Lexington Realty Trust 53,751 4,458 Liberty Property Trust 188,350 1,385 Life Storage, Inc. 131,797 1,182 LTC Properties, Inc. 52,138 4,112 Macerich (The) Co. 227,352 2,720 Mack-Cali Realty Corp. 57,827 10,971 Medical Properties Trust, Inc. 163,578 3,430 Mid-America Apartment Communities, Inc. 343,617 SHARES DESCRIPTION VALUE ------------------------------------------------------------- UNITED STATES (CONTINUED) 2,326 Monmouth Real Estate Investment Corp. $ 38,891 1,229 National Health Investors, Inc. 92,900 4,724 National Retail Properties, Inc. 211,730 1,702 National Storage Affiliates Trust 43,299 2,243 New Senior Investment Group, Inc. 13,234 5,924 Omega Healthcare Investors, Inc. 194,129 6,267 Paramount Group, Inc. 94,569 6,077 Park Hotels & Resorts, Inc. 199,447 2,049 Pebblebrook Hotel Trust 74,522 2,068 Pennsylvania Real Estate Investment Trust 19,563 5,491 Physicians Realty Trust 92,578 3,852 Piedmont Office Realty Trust, Inc., Class A 72,918 18,950 Prologis, Inc. 1,284,620 598 PS Business Parks, Inc. 76,000 4,491 Public Storage 905,520 1,531 QTS Realty Trust, Inc., Class A 65,328 2,384 Ramco-Gershenson Properties Trust 32,422 8,775 Realty Income Corp. 499,210 4,594 Regency Centers Corp. 297,094 3,339 Retail Opportunity Investments Corp. 62,339 6,624 Retail Properties of America, Inc., Class A 80,747 461 Retail Value, Inc. (c) 15,070 2,729 Rexford Industrial Realty, Inc. 87,219 5,227 RLJ Lodging Trust 115,151 1,344 Ryman Hospitality Properties, Inc. 115,812 5,348 Sabra Health Care REIT, Inc. 123,646 355 Saul Centers, Inc. 19,880 1,902 Select Income REIT 41,730 7,110 Senior Housing Properties Trust 124,852 982 Seritage Growth Properties, Class A 46,635 9,328 Simon Property Group, Inc. 1,648,724 4,614 SITE Centers Corp. 61,781 2,530 SL Green Realty Corp. 246,751 1,294 Spirit MTA REIT 14,907 12,935 Spirit Realty Capital, Inc. 104,256 3,160 STAG Industrial, Inc. 86,900 5,595 STORE Capital Corp. 155,485 3,108 Summit Hotel Properties, Inc. 42,051 2,517 Sun Communities, Inc. 255,576 6,860 Sunstone Hotel Investors, Inc. 112,230 2,762 Tanger Factory Outlet Centers, Inc. 63,195 1,791 Taubman Centers, Inc. 107,155 1,724 Terreno Realty Corp. 64,995 1,519 Tier REIT, Inc. 36,608 8,026 UDR, Inc. 324,491 385 Universal Health Realty Income Trust 28,648 3,288 Urban Edge Properties 72,599 889 Urstadt Biddle Properties, Inc., Class A 18,927 10,770 Ventas, Inc. 585,673 See Notes to Financial Statements Page 39 <PAGE> FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) (CONTINUED) UNITED STATES (CONTINUED) 29,323 VEREIT, Inc. $ 212,885 11,214 VICI Properties, Inc. 242,447 5,214 Vornado Realty Trust 380,622 5,618 Washington Prime Group, Inc. 41,011 2,369 Washington Real Estate Investment Trust 72,610 3,611 Weingarten Realty Investors 107,463 11,263 Welltower, Inc. 724,436 3,200 WP Carey, Inc. 205,792 3,387 Xenia Hotels & Resorts, Inc. 80,272 -------------- 23,788,166 -------------- TOTAL COMMON STOCKS -- 98.9% 44,571,532 (Cost $40,495,993) -------------- INVESTMENT COMPANIES (a) -- 0.2% GUERNSEY -- 0.2% 15,953 F&C Commercial Property Trust Ltd. 29,027 13,426 MedicX Fund Ltd. 14,349 16,353 Picton Property Income Ltd. 18,757 19,783 UK Commercial Property REIT Ltd. 22,536 -------------- TOTAL INVESTMENT COMPANIES -- 0.2% 84,669 (Cost $88,829) -------------- RIGHTS (a) -- 0.0% UNITED KINGDOM -- 0.0% 1,346 LXI REIT PLC, expiring 10/14/18 (b) (c) 57 2,048 Triple Point Social Housing REIT PLC, expiring 10/20/18 (b) (c) 107 -------------- TOTAL RIGHTS -- 0.0% 164 (Cost $0) -------------- MONEY MARKET FUNDS -- 0.6% 276,309 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 1.93% (f) 276,309 (Cost $276,309) -------------- TOTAL INVESTMENTS -- 99.7% 44,932,674 (Cost $40,861,131) (g) NET OTHER ASSETS AND LIABILITIES -- 0.3% 141,020 -------------- NET ASSETS -- 100.0% $ 45,073,694 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) This security is fair valued by the Advisor's Pricing Committee in accordance with procedures adopted by the Trust's Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940, as amended. At September 30, 2018, securities noted as such are valued at $164 or 0.0% of net assets. (c) Non-income producing security. (d) This is a restricted security which cannot be traded as a result of the in-specie distribution. It was acquired on August 6, 2009 at a cost of $0 and has a carrying value per share of $0. (e) This security is restricted in the U.S. and cannot be offered for public sale without first being registered under the Securities Act of 1933, as amended. This security is not restricted on the foreign exchange where it trades freely without any additional registration. As such, it does not require the additional disclosure required of restricted securities. (f) Rate shown reflects yield as of September 30, 2018. (g) Aggregate cost for federal income tax purposes is $42,045,130. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $6,091,971 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $3,204,427. The net unrealized appreciation was $2,887,544. Page 40 See Notes to Financial Statements <PAGE> FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs TOTAL VALUE AT 9/30/2018 LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------- Common Stocks: Australia $ 2,096,023 $ 2,096,023 $ --** $ -- Other Country Categories* 42,475,509 42,475,509 -- -- --------------------------------------------------------- Total Common Stocks 44,571,532 44,571,532 --** -- Investment Companies* 84,669 84,669 -- -- Rights* 164 -- 164 -- Money Market Funds 276,309 276,309 -- -- --------------------------------------------------------- Total Investments $ 44,932,674 $ 44,932,510 $ 164 $ -- ========================================================= * See Portfolio of Investments for country breakout. ** Investment is valued at $0. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- United States Dollar 54.1% Japanese Yen 10.8 Euro 10.4 Hong Kong Dollar 7.2 British Pound Sterling 4.8 Australian Dollar 4.6 Canadian Dollar 2.9 Singapore Dollar 2.3 Swedish Krona 1.6 Swiss Franc 1.0 Israeli Shekel 0.1 Norwegian Krone 0.1 New Zealand Dollar 0.1 ------ Total 100.0% ====== See Notes to Financial Statements Page 41 <PAGE> FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 99.3% AUSTRALIA -- 14.8% 226,760 Australia & New Zealand Banking Group Ltd. $ 4,619,091 666,300 Bendigo and Adelaide Bank Ltd. 5,177,587 87,038 Commonwealth Bank of Australia 4,492,800 397,213 Crown Resorts Ltd. 3,930,755 1,758,244 Fortescue Metals Group Ltd. 4,982,121 1,878,775 Harvey Norman Holdings Ltd. 4,780,425 226,696 JB Hi-Fi Ltd. 4,127,824 53,221 Macquarie Group Ltd. 4,848,870 256,649 National Australia Bank Ltd. 5,159,287 449,661 Suncorp Group Ltd. 4,700,051 927,212 Sydney Airport 4,617,930 1,273,671 Tabcorp Holdings Ltd. 4,483,687 2,381,154 Telstra Corp., Ltd. 5,490,694 154,102 Wesfarmers Ltd. 5,552,934 237,574 Westpac Banking Corp. 4,796,439 -------------- 71,760,495 -------------- BERMUDA -- 0.8% 341,846 VTech Holdings Ltd. 3,947,560 -------------- CANADA -- 13.1% 61,151 Bank of Nova Scotia (The) 3,644,962 112,141 BCE, Inc. 4,543,289 45,685 Canadian Imperial Bank of Commerce 4,280,769 203,452 CI Financial Corp. 3,230,597 1,516,251 Element Fleet Management Corp. 7,806,348 156,957 Emera, Inc. 4,880,109 142,534 Genworth MI Canada, Inc. 4,699,820 170,018 IGM Financial, Inc. 4,672,813 72,276 National Bank of Canada 3,609,743 152,118 Norbord, Inc. 5,040,569 213,599 Russel Metals, Inc. 4,431,892 227,052 Shaw Communications, Inc., Class B 4,424,495 108,681 TELUS Corp. 4,005,963 105,137 TransCanada Corp. 4,253,830 -------------- 63,525,199 -------------- CAYMAN ISLANDS -- 1.0% 567,593 Phoenix Group Holdings 5,001,080 -------------- DENMARK -- 0.9% 164,872 Tryg A/S 4,104,537 -------------- FINLAND -- 3.8% 247,176 Fortum OYJ 6,195,973 114,401 Metso OYJ 4,056,481 82,233 Nokian Renkaat OYJ 3,369,367 90,698 Sampo OYJ, Class A 4,696,596 -------------- 18,318,417 -------------- FRANCE -- 8.1% 159,041 AXA S.A. 4,274,750 54,079 BNP Paribas S.A. 3,309,575 73,867 Bouygues S.A. 3,192,965 115,459 Casino Guichard Perrachon S.A. 4,855,420 155,715 CNP Assurances 3,753,258 SHARES DESCRIPTION VALUE ------------------------------------------------------------- FRANCE (CONTINUED) 381,910 Engie S.A. $ 5,615,867 162,577 Lagardere S.C.A. 5,004,025 559,434 Natixis S.A. 3,795,855 83,761 TOTAL S.A. 5,430,475 -------------- 39,232,190 -------------- GERMANY -- 2.5% 114,956 Aareal Bank AG 4,807,574 16,157 Allianz SE 3,601,741 55,840 Daimler AG 3,523,673 -------------- 11,932,988 -------------- HONG KONG -- 1.9% 2,400,146 New World Development Co., Ltd. 3,274,452 10,538,756 PCCW Ltd. 6,138,807 -------------- 9,413,259 -------------- IRELAND -- 0.7% 76,044 Seagate Technology PLC 3,600,683 -------------- ITALY -- 2.9% 244,522 Assicurazioni Generali S.p.A. 4,224,463 548,447 Banca Mediolanum S.p.A. 3,731,495 315,755 Eni S.p.A. 5,969,096 -------------- 13,925,054 -------------- JAPAN -- 0.7% 94,078 Aozora Bank Ltd. 3,361,703 -------------- LUXEMBOURG -- 1.6% 357,267 SES S.A. 7,839,806 -------------- NETHERLANDS -- 1.3% 619,045 Aegon N.V. 4,016,328 101,949 BE Semiconductor Industries N.V. 2,150,743 -------------- 6,167,071 -------------- NEW ZEALAND -- 1.5% 2,739,742 Spark New Zealand Ltd. 7,354,939 -------------- NORWAY -- 0.9% 156,344 Equinor ASA 4,408,656 -------------- PORTUGAL -- 1.4% 1,782,003 EDP-Energias de Portugal S.A. 6,575,260 -------------- SINGAPORE -- 1.8% 1,855,040 Singapore Telecommunications Ltd. 4,396,569 3,155,316 StarHub Ltd. 4,316,185 -------------- 8,712,754 -------------- SPAIN -- 4.0% 1,433,158 Mapfre S.A. 4,496,038 209,415 Naturgy Energy Group S.A. 5,716,247 261,230 Red Electrica Corp., S.A. 5,471,548 463,256 Telefonica S.A. 3,667,150 -------------- 19,350,983 -------------- SWEDEN -- 5.5% 248,643 JM AB 4,881,991 567,100 Nordea Bank AB 6,180,582 451,459 Skandinaviska Enskilda Banken AB, Class A 5,041,158 Page 42 See Notes to Financial Statements <PAGE> FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) (CONTINUED) SWEDEN (CONTINUED) 220,818 Swedbank AB, Class A $ 5,473,615 1,098,018 Telia Co., AB 5,043,218 -------------- 26,620,564 -------------- SWITZERLAND -- 2.6% 46,282 Swiss Re AG 4,272,620 7,282 Swisscom AG 3,304,873 16,207 Zurich Insurance Group AG 5,122,694 -------------- 12,700,187 -------------- UNITED KINGDOM -- 12.1% 62,994 AstraZeneca PLC 4,896,030 252,988 Bovis Homes Group PLC 3,536,530 1,759,261 BT Group PLC 5,166,204 1,944,476 Dixons Carphone PLC 4,299,684 876,799 Galliford Try PLC 11,553,971 490,819 HSBC Holdings PLC 4,284,958 1,399,403 Legal & General Group PLC 4,782,507 168,959 Royal Dutch Shell PLC, Class A 5,806,163 1,026,134 Standard Life Aberdeen PLC 4,091,322 586,728 Tate & Lyle PLC 5,221,682 555,115 United Utilities Group PLC 5,093,727 -------------- 58,732,778 -------------- UNITED STATES -- 15.4% 135,424 AT&T, Inc. 4,547,538 139,379 CenterPoint Energy, Inc. 3,853,829 620,250 CenturyLink, Inc. 13,149,300 30,761 Chevron Corp. 3,761,455 127,916 FirstEnergy Corp. 4,754,638 482,636 Ford Motor Co. 4,464,383 551,378 GameStop Corp., Class A 8,419,542 327,074 Guess?, Inc. 7,391,872 60,432 Helmerich & Payne, Inc. 4,155,909 51,387 Kohl's Corp. 3,830,901 64,135 PacWest Bancorp 3,056,033 111,930 Southern (The) Co. 4,880,148 100,719 Tupperware Brands Corp. 3,369,050 226,242 Waddell & Reed Financial, Inc., Class A 4,791,806 -------------- 74,426,404 -------------- TOTAL INVESTMENTS -- 99.3% 481,012,567 (Cost $477,123,703) (b) NET OTHER ASSETS AND LIABILITIES -- 0.7% 3,267,419 -------------- NET ASSETS -- 100.0% $ 484,279,986 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) Aggregate cost for federal income tax purposes is $481,811,138. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $41,996,639 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $42,795,210. The net unrealized depreciation was $798,571. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 481,012,567 $ -- $ -- ============================================== * See Portfolio of Investments for country breakout. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- Euro 25.7% United States Dollar 16.2 Australian Dollar 14.9 British Pound Sterling 13.3 Canadian Dollar 13.2 Swedish Krona 5.5 Hong Kong Dollar 2.8 Swiss Franc 2.6 Singapore Dollar 1.8 New Zealand Dollar 1.5 Norwegian Krone 0.9 Danish Krone 0.9 Japanese Yen 0.7 ------ Total 100.0% ====== See Notes to Financial Statements Page 43 <PAGE> FIRST TRUST GLOBAL WIND ENERGY ETF (FAN) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 99.8% AUSTRALIA -- 4.5% 108,164 AGL Energy Ltd. $ 1,524,637 4,726,661 Infigen Energy (b) (c) 2,015,838 -------------- 3,540,475 -------------- CANADA -- 5.5% 300,404 Boralex, Inc., Class A 4,193,306 19,110 TransAlta Renewables, Inc. 170,143 -------------- 4,363,449 -------------- CAYMAN ISLANDS -- 3.0% 2,095,929 China High Speed Transmission Equipment Group Co., Ltd. (b) 2,409,622 -------------- CHINA -- 11.9% 7,694,711 China Longyuan Power Group Corp., Ltd., Class H 6,467,672 281,701 China Suntien Green Energy Corp., Ltd., Class H 78,447 2,718,727 Xinjiang Goldwind Science & Technology Co., Ltd., Class H 2,920,729 -------------- 9,466,848 -------------- DENMARK -- 16.6% 102,019 Orsted A/S (d) 6,930,030 92,553 Vestas Wind Systems A/S 6,259,637 -------------- 13,189,667 -------------- FRANCE -- 2.0% 109,930 Engie S.A. 1,616,486 -------------- GERMANY -- 11.4% 151,309 E. ON SE 1,542,446 305,454 Nordex SE (c) 3,286,160 319,977 PNE AG 1,032,795 63,571 RWE AG 1,568,442 12,432 Siemens AG 1,592,666 -------------- 9,022,509 -------------- GREECE -- 2.1% 224,083 Terna Energy S.A. 1,657,292 -------------- ITALY -- 3.6% 325,801 Enel S.p.A 1,668,931 49,954 Prysmian S.p.A. 1,163,461 -------------- 2,832,392 -------------- JAPAN -- 4.2% 96,710 Mitsui & Co., Ltd. 1,719,790 214,904 Toray Industries, Inc. 1,614,334 -------------- 3,334,124 -------------- NETHERLANDS -- 1.3% 55,198 SIF Holding N.V. 1,025,401 -------------- PORTUGAL -- 1.7% 374,221 EDP-Energias de Portugal S.A. 1,380,806 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- SOUTH KOREA -- 0.9% 5,325 Dongkuk Structures & Construction Co., Ltd. $ 19,130 382,693 Unison Co., Ltd. (c) 714,153 -------------- 733,283 -------------- SPAIN -- 11.5% 4,053 Acciona S.A. 367,329 200,003 Audax Renovables S.A. (c) 433,078 59,175 Endesa S.A. 1,278,601 216,909 Iberdrola S.A. 1,596,175 432,079 Siemens Gamesa Renewable Energy S.A. (c) 5,468,148 -------------- 9,143,331 -------------- SWEDEN -- 1.8% 70,614 SKF AB, Class B 1,393,227 -------------- SWITZERLAND -- 2.4% 68,561 ABB Ltd. 1,620,063 3,639 BKW AG 230,636 66 Gurit Holding AG 55,549 -------------- 1,906,248 -------------- UNITED KINGDOM -- 1.9% 99,506 SSE PLC 1,486,326 -------------- UNITED STATES -- 13.5% 37,721 Alliant Energy Corp. 1,605,783 93,987 American Superconductor Corp. (b) (c) 653,210 19,891 Duke Energy Corp. 1,591,678 124,882 General Electric Co. 1,409,918 9,500 NextEra Energy, Inc. 1,592,200 74,488 TPI Composites, Inc. (c) 2,126,632 25,314 Trinity Industries, Inc. 927,505 9,653 Woodward, Inc. 780,541 -------------- 10,687,467 -------------- TOTAL COMMON STOCKS -- 99.8% 79,188,953 (Cost $81,152,154) -------------- MONEY MARKET FUNDS -- 0.6% 466,896 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 2.08% (e) (f) 466,896 (Cost $466,896) -------------- Page 44 See Notes to Financial Statements <PAGE> FIRST TRUST GLOBAL WIND ENERGY ETF (FAN) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 PRINCIPAL VALUE DESCRIPTION VALUE ------------------------------------------------------------- REPURCHASE AGREEMENTS -- 3.7% $ 512,818 BNP Paribas S.A., 2.24% (e), dated 09/28/18, due 10/01/18, with a maturity value of $512,914. Collateralized by U.S. Treasury Notes, interest rates of 2.625% to 3.500%, due 02/15/19 to 11/15/20. The value of the collateral including accrued interest is $523,253. (f) $ 512,818 2,396,169 JPMorgan Chase & Co., 2.15% (e), dated 09/28/18, due 10/01/18, with a maturity value of $2,396,598. Collateralized by U.S. Treasury Note, interest rate of 1.375%, due 08/31/23. The value of the collateral including accrued interest is $2,447,054. (f) 2,396,169 -------------- TOTAL REPURCHASE AGREEMENTS -- 3.7% 2,908,987 (Cost $2,908,987) -------------- TOTAL INVESTMENTS -- 104.1% 82,564,836 (Cost $84,528,037) (g) NET OTHER ASSETS AND LIABILITIES -- (4.1)% (3,202,475) -------------- NET ASSETS -- 100.0% $ 79,362,361 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) All or a portion of this security is on loan (see Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $3,012,125 and the total value of the collateral held by the Fund is $3,375,883. (c) Non-income producing security. (d) This security is restricted in the U.S. and cannot be offered for public sale without first being registered under the Securities Act of 1933, as amended. This security is not restricted on the foreign exchange where it trades freely without any additional registration. As such, it does not require the additional disclosure required of restricted securities. (e) Rate shown reflects yield as of September 30, 2018. (f) This security serves as collateral for securities on loan. (g) Aggregate cost for federal income tax purposes is $87,269,126. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $4,120,061 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $8,824,351. The net unrealized depreciation was $4,704,290. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 79,188,953 $ -- $ -- Money Market Funds 466,896 -- -- Repurchase Agreements -- 2,908,987 -- ---------------------------------------------- Total Investments $ 79,655,849 $ 2,908,987 $ -- ============================================== * See Portfolio of Investments for country breakout. See Notes to Financial Statements Page 45 <PAGE> FIRST TRUST GLOBAL WIND ENERGY ETF (FAN) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 3,012,125 Non-cash Collateral(2) (3,012,125) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At September 30, 2018, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(3) $ 2,908,987 Non-cash Collateral(4) (2,908,987) -------------- Net Amount $ -- ============== (3) The amount is included in "Investments, at value" on the Statements of Assets and Liabilities. (4) At September 30, 2018, the value of the collateral received from each seller exceeded the value of the repurchase agreements. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- Euro 32.3% United States Dollar 17.0 Danish Krone 16.0 Hong Kong Dollar 14.4 Canadian Dollar 5.3 Australian Dollar 4.3 Japanese Yen 4.0 Swiss Franc 2.3 British Pound Sterling 1.8 Swedish Krona 1.7 South Korean Won 0.9 ------ Total 100.0% ====== Page 46 See Notes to Financial Statements <PAGE> FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF (FLM) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 99.8% AUSTRALIA -- 4.2% 7,376 CIMIC Group Ltd. $ 273,839 44,687 Downer EDI Ltd. 254,863 5,993 Monadelphous Group Ltd. 69,659 -------------- 598,361 -------------- CANADA -- 3.5% 7,538 SNC-Lavalin Group, Inc. 307,379 7,386 Stantec, Inc. 183,728 -------------- 491,107 -------------- CAYMAN ISLANDS -- 1.0% 139,574 China State Construction International Holdings Ltd. 147,448 -------------- CHINA -- 4.5% 299,697 China Communications Construction Co., Ltd., Class H 306,268 329,877 China Railway Group Ltd., Class H 326,997 -------------- 633,265 -------------- FINLAND -- 0.7% 13,958 YIT OYJ 97,722 -------------- FRANCE -- 8.5% 8,862 Bouygues S.A. 383,068 3,473 Eiffage S.A. 387,748 4,633 Vinci S.A. 441,197 -------------- 1,212,013 -------------- GERMANY -- 1.8% 1,573 HOCHTIEF AG 260,800 -------------- IRELAND -- 2.2% 6,557 Kingspan Group PLC 305,738 -------------- JAPAN -- 29.0% 25,200 Chiyoda Corp. 205,158 11,700 COMSYS Holdings Corp. 346,510 17,400 JGC Corp. 399,088 24,000 Kajima Corp. 348,741 9,000 Kandenko Co., Ltd. 92,915 10,600 Kinden Corp. 169,701 3,470 Kumagai Gumi Co., Ltd. 96,050 10,000 Kyowa Exeo Corp. 292,642 19,200 Maeda Corp. 253,477 4,400 Maeda Road Construction Co., Ltd. 89,495 2,100 Nippo Corp. 38,536 6,220 Nishimatsu Construction Co., Ltd. 157,443 35,800 Obayashi Corp. 339,032 3,900 Okumura Corp. 122,368 27,400 Penta-Ocean Construction Co., Ltd. 182,554 1,800 Raito Kogyo Co., Ltd. 25,744 36,200 Shimizu Corp. 330,394 1,100 SHO-BOND Holdings Co., Ltd. 88,778 7,600 Taisei Corp. 346,488 19,100 Toda Corp. 137,846 2,400 Toshiba Plant Systems & Services Corp. 51,287 -------------- 4,114,247 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- NETHERLANDS -- 3.2% 3,978 Arcadis N.V. $ 66,555 10,058 Boskalis Westminster (b) 316,586 18,790 Koninklijke BAM Groep N.V. 72,168 -------------- 455,309 -------------- NORWAY -- 0.3% 3,778 Veidekke ASA 41,267 -------------- PANAMA -- 1.8% 13,780 McDermott International, Inc. (c) 253,965 -------------- PHILIPPINES -- 0.6% 13,680 Manila Electric Co. 86,086 -------------- SOUTH KOREA -- 3.5% 40,280 Daewoo Engineering & Construction Co., Ltd. (c) 214,972 5,858 GS Engineering & Construction Corp. 276,199 -------------- 491,171 -------------- SPAIN -- 4.7% 10,307 ACS Actividades de Construccion y Servicios S.A. 438,947 28,239 Obrascon Huarte Lain S.A. 56,295 22,146 Sacyr S.A. 64,924 3,624 Tecnicas Reunidas S.A. 111,545 -------------- 671,711 -------------- SWEDEN -- 4.6% 7,173 NCC AB, Class B 127,118 15,012 Peab AB 137,411 19,667 Skanska AB, Class B 386,263 -------------- 650,792 -------------- UNITED KINGDOM -- 2.8% 57,474 Balfour Beatty PLC 205,334 14,827 Galliford Try PLC 195,382 -------------- 400,716 -------------- UNITED STATES -- 22.9% 9,959 AECOM (c) 325,261 3,371 Dycom Industries, Inc. (c) 285,187 4,377 EMCOR Group, Inc. 328,756 8,167 Fluor Corp. 474,503 4,239 Granite Construction, Inc. 193,722 6,537 Jacobs Engineering Group, Inc. 500,080 16,058 KBR, Inc. 339,306 7,281 MasTec, Inc. (c) 325,097 10,750 Quanta Services, Inc. (c) 358,835 6,640 Tutor Perini Corp. (c) 124,832 -------------- 3,255,579 -------------- TOTAL COMMON STOCKS -- 99.8% 14,167,297 (Cost $12,658,956) -------------- MONEY MARKET FUNDS -- 0.2% 35,426 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 2.08% (d) (e) 35,426 (Cost $35,426) -------------- See Notes to Financial Statements Page 47 <PAGE> FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF (FLM) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 PRINCIPAL VALUE DESCRIPTION VALUE ------------------------------------------------------------- REPURCHASE AGREEMENTS -- 1.6% $ 38,910 BNP Paribas S.A., 2.24% (d), dated 09/28/18, due 10/01/18, with a maturity value of $38,917. Collateralized by U.S. Treasury Notes, interest rates of 2.625% to 3.500%, due 02/15/19 to 11/15/20. The value of the collateral including accrued interest is $39,702. (e) $ 38,910 181,809 JPMorgan Chase & Co., 2.15% (d), dated 09/28/18, due 10/01/18, with a maturity value of $181,842. Collateralized by U.S. Treasury Note, interest rate of 1.375%, due 08/31/23. The value of the collateral including accrued interest is $185,670. (e) 181,809 -------------- TOTAL REPURCHASE AGREEMENTS -- 1.6% 220,719 (Cost $220,719) -------------- TOTAL INVESTMENTS -- 101.6% 14,423,442 (Cost $12,915,101) (f) NET OTHER ASSETS AND LIABILITIES -- (1.6)% (229,125) -------------- NET ASSETS -- 100.0% $ 14,194,317 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) All or a portion of this security is on loan (see Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $235,881 and the total value of the collateral held by the Fund is $256,145. (c) Non-income producing security. (d) Rate shown reflects yield as of September 30, 2018. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $13,024,932. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $2,135,247 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $736,737. The net unrealized appreciation was $1,398,510. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 14,167,297 $ -- $ -- Money Market Funds 35,426 -- -- Repurchase Agreements -- 220,719 -- ---------------------------------------------- Total Investments $ 14,202,723 $ 220,719 $ -- ============================================== * See Portfolio of Investments for country breakout. Page 48 See Notes to Financial Statements <PAGE> FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF (FLM) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 235,881 Non-cash Collateral(2) (235,881) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At September 30, 2018, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(3) $ 220,719 Non-cash Collateral(4) (220,719) -------------- Net Amount $ -- ============== (3) The amount is included in "Investments, at value" on the Statements of Assets and Liabilities. (4) At September 30, 2018, the value of the collateral received from each seller exceeded the value of the repurchase agreements. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- Japanese Yen 28.5% United States Dollar 26.1 Euro 20.8 Hong Kong Dollar 5.4 Swedish Krona 4.5 Australian Dollar 4.2 South Korean Won 3.4 Canadian Dollar 3.4 British Pound Sterling 2.8 Philippine Peso 0.6 Norwegian Krone 0.3 ------ Total 100.0% ====== See Notes to Financial Statements Page 49 <PAGE> FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 100.1% CANADA -- 0.3% 2,966 Fortis, Inc. $ 96,169 -------------- CHINA -- 0.1% 4,808 BYD Co., Ltd., Class H (b) 34,517 -------------- FRANCE -- 8.2% 34,130 Schneider Electric SE 2,746,124 -------------- GERMANY -- 4.1% 5,223 Siemens AG 669,120 30,384 SMA Solar Technology AG 711,896 -------------- 1,381,016 -------------- IRELAND -- 5.4% 2,814 Eaton Corp. PLC 244,058 6,006 Johnson Controls International PLC 210,210 49,531 nVent Electric PLC 1,345,262 -------------- 1,799,530 -------------- ITALY -- 8.3% 50,403 Enel S.p.A. 258,192 107,634 Prysmian S.p.A. 2,506,865 -------------- 2,765,057 -------------- JAPAN -- 3.3% 1,700 NEC Corp. 46,981 2,000 NGK Insulators Ltd. 32,987 46,300 Nissin Electric Co., Ltd. 421,353 36,700 Osaki Electric Co., Ltd. 282,954 17,100 Panasonic Corp. 199,189 3,600 Toshiba Corp. (c) 104,084 -------------- 1,087,548 -------------- JERSEY ISLAND -- 8.0% 31,618 Aptiv PLC 2,652,750 -------------- NETHERLANDS -- 0.0% 725 STMicroelectronics N.V. 13,296 -------------- SPAIN -- 8.3% 132,134 Red Electrica Corp., S.A. 2,767,590 -------------- SWITZERLAND -- 12.1% 118,035 ABB Ltd. 2,789,109 18,863 Landis+Gyr Group AG 1,259,904 -------------- 4,049,013 -------------- TAIWAN -- 0.1% 3,020 Advantech Co., Ltd. 22,502 -------------- UNITED KINGDOM -- 0.7% 22,069 National Grid PLC 227,645 -------------- UNITED STATES -- 41.2% 23,352 Advanced Energy Industries, Inc. (c) 1,206,131 16,729 American Superconductor Corp. (b) (c) 116,267 2,465 Analog Devices, Inc. 227,914 125 AZZ, Inc. 6,312 17,845 Badger Meter, Inc. 944,893 241 Belden, Inc. 17,210 SHARES DESCRIPTION VALUE ------------------------------------------------------------- UNITED STATES (CONTINUED) 14,563 Cisco Systems, Inc. $ 708,490 20,337 Control4 Corp. (c) 698,169 154 Digi International, Inc. (c) 2,071 265 EnerSys 23,089 61,126 Enphase Energy, Inc. (c) 296,461 134 ESCO Technologies, Inc. 9,119 53,761 General Electric Co. 606,962 4,374 Honeywell International, Inc. 727,834 329 Hubbell, Inc. 43,944 4,749 International Business Machines Corp. 718,096 20,954 Itron, Inc. (c) 1,345,247 415 MasTec, Inc. (c) 18,530 11,604 MYR Group, Inc. (c) 378,755 2,479 NVIDIA Corp. 696,649 14,320 Oracle Corp. 738,339 40,224 Quanta Services, Inc. (c) 1,342,677 29,016 SolarEdge Technologies, Inc. (c) 1,092,452 703 Tesla, Inc. (b) (c) 186,133 122 Valmont Industries, Inc. 16,897 27,860 Veoneer, Inc. (c) 1,534,250 299 WESCO International, Inc. (c) 18,374 -------------- 13,721,265 -------------- TOTAL COMMON STOCKS -- 100.1% 33,364,022 (Cost $32,608,534) -------------- MONEY MARKET FUNDS -- 0.1% 37,303 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 2.08% (d) (e) 37,303 (Cost $37,303) -------------- PRINCIPAL VALUE DESCRIPTION VALUE ------------------------------------------------------------- REPURCHASE AGREEMENTS -- 0.7% $ 40,971 BNP Paribas S.A., 2.24% (d), dated 09/28/18, due 10/01/18, with a maturity value of $40,979. Collateralized by U.S. Treasury Notes, interest rates of 2.625% to 3.500%, due 02/15/19 to 11/15/20. The value of the collateral including accrued interest is $41,805. (e) 40,971 191,442 JPMorgan Chase & Co., 2.15% (d), dated 09/28/18, due 10/01/18, with a maturity value of $191,476. Collateralized by U.S. Treasury Note, interest rate of 1.375%, due 08/31/23. The value of the collateral including accrued interest is $195,507. (e) 191,442 -------------- TOTAL REPURCHASE AGREEMENTS -- 0.7% 232,413 (Cost $232,413) -------------- Page 50 See Notes to Financial Statements <PAGE> FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 DESCRIPTION VALUE ------------------------------------------------------------- TOTAL INVESTMENTS -- 100.9% $ 33,633,738 (Cost $32,878,250) (f) NET OTHER ASSETS AND LIABILITIES -- (0.9)% (300,664) -------------- NET ASSETS -- 100.0% $ 33,333,074 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) All or a portion of this security is on loan (see Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $241,453 and the total value of the collateral held by the Fund is $269,716. (c) Non-income producing security. (d) Rate shown reflects yield as of September 30, 2018. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $33,016,585. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $2,421,743 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $1,804,590. The net unrealized appreciation was $617,153. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 33,364,022 $ -- $ -- Money Market Funds 37,303 -- -- Repurchase Agreements -- 232,413 -- ---------------------------------------------- Total Investments $ 33,401,325 $ 232,413 $ -- ============================================== * See Portfolio of Investments for country breakout. --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 241,453 Non-cash Collateral(2) (241,453) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At September 30, 2018, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(3) $ 232,413 Non-cash Collateral(4) (232,413) -------------- Net Amount $ -- ============== (3) The amount is included in "Investments, at value" on the Statements of Assets and Liabilities. (4) At September 30, 2018, the value of the collateral received from each seller exceeded the value of the repurchase agreements. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- United States Dollar 54.9% Euro 28.7 Swiss Franc 12.0 Japanese Yen 3.2 British Pound Sterling 0.7 Canadian Dollar 0.3 Hong Kong Dollar 0.1 New Taiwan Dollar 0.1 ------ Total 100.0% ====== See Notes to Financial Statements Page 51 <PAGE> FIRST TRUST INDXX GLOBAL NATURAL RESOURCES INCOME ETF (FTRI) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 99.8% AUSTRALIA -- 7.9% 72,225 Alumina Ltd. $ 144,616 44,482 Fortescue Metals Group Ltd. 126,043 7,615 Inghams Group Ltd. 21,357 14,684 Woodside Petroleum Ltd. 409,502 -------------- 701,518 -------------- BRAZIL -- 0.4% 1,906 Cia de Saneamento de Minas Gerais-COPASA 18,401 1,350 SLC Agricola S.A. 20,311 -------------- 38,712 -------------- CANADA -- 3.5% 10,892 ARC Resources Ltd. 121,430 1,901 Russel Metals, Inc. 39,443 4,457 Vermilion Energy, Inc. 146,814 -------------- 307,687 -------------- CAYMAN ISLANDS -- 0.2% 43,805 China Zhongwang Holdings Ltd. 21,432 -------------- CHILE -- 0.5% 80,996 Aguas Andinas S.A., Class A 44,826 -------------- CHINA -- 1.4% 52,000 Yanzhou Coal Mining Co., Ltd., Class H 60,248 178,000 Zijin Mining Group Co., Ltd., Class H 68,441 -------------- 128,689 -------------- FINLAND -- 4.5% 10,155 UPM-Kymmene OYJ 398,517 -------------- FRANCE -- 15.3% 10,433 Suez 148,266 13,574 TOTAL S.A., ADR 874,030 17,058 Veolia Environnement S.A. 340,451 -------------- 1,362,747 -------------- HONG KONG -- 1.7% 87,546 Guangdong Investment Ltd. 155,446 -------------- INDIA -- 2.0% 26,280 National Aluminium Co., Ltd. 21,969 8,578 Oil India Ltd. 25,980 10,006 Vedanta Ltd., ADR 128,077 -------------- 176,026 -------------- INDONESIA -- 1.1% 420,810 Adaro Energy Tbk PT 51,819 78,787 Bukit Asam Tbk PT 22,841 11,166 Indo Tambangraya Megah Tbk PT 19,370 -------------- 94,030 -------------- JAPAN -- 0.6% 2,800 Nippon Paper Industries Co., Ltd. 51,530 -------------- MALAYSIA -- 0.2% 56,400 FGV Holdings Bhd 21,124 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- NORWAY -- 4.2% 12,579 Marine Harvest ASA $ 291,417 1,591 Salmar ASA 79,406 -------------- 370,823 -------------- PORTUGAL -- 0.2% 1,845 Altri S.G.P.S. S.A. 17,694 -------------- RUSSIA -- 7.1% 54,481 Magnitogorsk Iron & Steel Works PJSC 43,398 2,967 Novolipetsk Steel PJSC, GDR 79,961 5,447 Severstal PJSC, GDR 90,693 33,151 Tatneft PJSC 422,742 -------------- 636,794 -------------- SINGAPORE -- 1.5% 56,000 Wilmar International Ltd. 131,904 -------------- SOUTH AFRICA -- 1.4% 2,998 African Rainbow Minerals Ltd. 27,261 967 Assore Ltd. 23,579 7,482 Exxaro Resources Ltd. 76,909 -------------- 127,749 -------------- SOUTH KOREA -- 3.8% 1,725 SK Innovation Co., Ltd. 334,348 -------------- TAIWAN -- 0.4% 21,574 Taiwan Fertilizer Co., Ltd. 32,856 -------------- THAILAND -- 0.6% 103,100 Thai Union Group PCL 57,065 -------------- TURKEY -- 0.8% 38,545 Eregli Demir ve Celik Fabrikalari TAS 70,446 -------------- UNITED KINGDOM -- 26.0% 12,946 Pennon Group PLC 120,345 18,383 Rio Tinto PLC 929,669 13,146 Royal Dutch Shell PLC, Class A, ADR 895,768 7,302 Severn Trent PLC 175,978 20,874 United Utilities Group PLC 191,540 -------------- 2,313,300 -------------- UNITED STATES -- 14.5% 3,210 Alliance Resource Partners, L.P. (b) 65,484 10,179 Exxon Mobil Corp. 865,418 7,344 International Paper Co. 360,958 -------------- 1,291,860 -------------- TOTAL INVESTMENTS -- 99.8% 8,887,123 (Cost $7,979,662) (c) NET OTHER ASSETS AND LIABILITIES -- 0.2% 20,663 -------------- NET ASSETS -- 100.0% $ 8,907,786 ============== Page 52 See Notes to Financial Statements <PAGE> FIRST TRUST INDXX GLOBAL NATURAL RESOURCES INCOME ETF (FTRI) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) Security is a Master Limited Partnership ("MLP"). (c) Aggregate cost for federal income tax purposes is $7,985,899. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $1,317,783 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $416,559. The net unrealized appreciation was $901,224. ADR - American Depositary Receipt GDR - Global Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 8,887,123 $ -- $ -- ============================================== * See Portfolio of Investments for country breakout. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- United States Dollar 39.5% British Pound Sterling 16.0 Euro 10.2 Australian Dollar 7.9 Russian Ruble 5.2 Norwegian Krone 4.2 South Korean Won 3.8 Hong Kong Dollar 3.4 Canadian Dollar 1.8 Singapore Dollar 1.5 South African Rand 1.4 Indonesian Rupiah 1.1 Turkish Lira 0.8 Thai Baht 0.6 Japanese Yen 0.6 Indian Rupee 0.5 Chilean Peso 0.5 Brazilian Real 0.4 New Taiwan Dollar 0.4 Malaysian Ringgit 0.2 ------ Total 100.0% ====== See Notes to Financial Statements Page 53 <PAGE> FIRST TRUST INDXX GLOBAL AGRICULTURE ETF (FTAG) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 99.6% AUSTRALIA -- 1.7% 2,490 GrainCorp Ltd., Class A $ 14,219 17,792 Incitec Pivot Ltd. 51,187 3,566 Nufarm Ltd. (b) 17,271 -------------- 82,677 -------------- BELGIUM -- 0.4% 469 Tessenderlo Group S.A. (c) 17,425 -------------- BERMUDA -- 2.1% 1,524 Bunge Ltd. 104,714 -------------- CANADA -- 4.5% 3,912 Nutrien Ltd. 225,879 -------------- CHILE -- 1.2% 1,310 Sociedad Quimica y Minera de Chile S.A., ADR 59,893 -------------- CHINA -- 0.2% 18,310 China BlueChemical Ltd., Class H 7,415 -------------- GERMANY -- 24.7% 5,394 BASF SE 479,410 5,921 Bayer AG 525,973 5,071 Evonik Industries AG 181,635 2,083 K+S AG 43,726 -------------- 1,230,744 -------------- INDIA -- 5.8% 4,523 Chambal Fertilizers and Chemicals Ltd. 9,456 3,172 Coromandel International Ltd. 17,676 1,333 Escorts Ltd. 11,250 13,513 Mahindra & Mahindra Ltd. 160,491 1,493 PI Industries Ltd. 14,662 2,771 Tata Chemicals Ltd. 26,468 5,542 UPL Ltd. 50,787 -------------- 290,790 -------------- JAPAN -- 9.9% 13,400 Kubota Corp. 227,736 2,200 Mitsui Chemicals, Inc. 55,010 1,600 Nissan Chemical Corp. 84,492 500 Sakata Seed Corp. 17,999 18,000 Sumitomo Chemical Co., Ltd. 105,351 -------------- 490,588 -------------- LUXEMBOURG -- 0.2% 1,270 Adecoagro S.A. (c) 9,335 -------------- MALAYSIA -- 4.0% 87,101 Petronas Chemicals Group Bhd 196,995 -------------- NETHERLANDS -- 5.0% 14,751 CNH Industrial N.V. 177,159 2,293 OCI N.V. (c) 73,293 -------------- 250,452 -------------- NORWAY -- 2.9% 2,973 Yara International ASA 146,006 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- RUSSIA -- 1.9% 1,409 PhosAgro PJSC $ 54,135 31,950 Uralkali PJSC (c) 40,479 -------------- 94,614 -------------- SINGAPORE -- 3.3% 69,700 Wilmar International Ltd. 164,174 -------------- SWITZERLAND -- 0.7% 112 Bucher Industries AG 35,972 -------------- TAIWAN -- 0.3% 10,664 Taiwan Fertilizer Co., Ltd. 16,241 -------------- TURKEY -- 0.1% 581 Turk Traktor ve Ziraat Makineleri AS 4,621 -------------- UNITED STATES -- 30.7% 861 AGCO Corp. 52,340 2,541 CF Industries Holdings, Inc. 138,332 3,274 Deere & Co. 492,180 6,988 DowDuPont, Inc. 449,398 1,465 FMC Corp. 127,719 4,195 Mosaic (The) Co. 136,254 391 Raven Industries, Inc. 17,888 603 Scotts Miracle-Gro (The) Co. 47,474 1,145 Toro (The) Co. 68,666 -------------- 1,530,251 -------------- TOTAL INVESTMENTS -- 99.6% 4,958,786 (Cost $4,860,083) (d) NET OTHER ASSETS AND LIABILITIES -- 0.4% 20,077 -------------- NET ASSETS -- 100.0% $ 4,978,863 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) This security is fair valued by the Advisor's Pricing Committee in accordance with procedures adopted by the Trust's Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940, as amended. At September 30, 2018, securities noted as such are valued at $17,271 or 0.3% of net assets. (c) Non-income producing security. (d) Aggregate cost for federal income tax purposes is $4,874,499. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $401,807 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $317,520. The net unrealized appreciation was $84,287. ADR - American Depositary Receipt Page 54 See Notes to Financial Statements <PAGE> FIRST TRUST INDXX GLOBAL AGRICULTURE ETF (FTAG) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs TOTAL VALUE AT 9/30/2018 LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------- Common Stocks: Australia $ 82,677 $ 65,406 $ 17,271 $ -- Other Country Categories* 4,876,109 4,876,109 -- -- --------------------------------------------------------- Total Investments $ 4,958,786 $ 4,941,515 $ 17,271 $ -- ========================================================= * See Portfolio of Investments for country breakout. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- United States Dollar 37.9% Euro 26.6 Japanese Yen 9.9 Indian Rupee 5.9 Canadian Dollar 4.6 Malaysian Ringgit 4.0 Singapore Dollar 3.3 Norwegian Krone 2.9 Russian Ruble 1.9 Australian Dollar 1.7 Swiss Franc 0.7 Taiwan Dollar 0.3 Hong Kong Dollar 0.2 Turkish Lira 0.1 ------ Total 100.0% ====== See Notes to Financial Statements Page 55 <PAGE> FIRST TRUST BICK INDEX FUND (BICK) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 99.8% BRAZIL -- 24.9% 412,503 Ambev S.A., ADR $ 1,885,139 363,186 B3 S.A. - Brasil Bolsa Balcao 2,104,357 276,389 Banco Bradesco S.A., ADR 1,956,834 262,556 Banco do Brasil S.A. 1,910,716 322,832 BB Seguridade Participacoes S.A. 1,921,700 392,595 BRF S.A. (b) 2,129,912 523,373 Cielo S.A. 1,581,050 99,955 Embraer S.A., ADR 1,958,118 98,924 Fibria Celulose S.A., ADR 1,833,062 492,701 Gerdau S.A. (Preference Shares) 2,083,751 184,083 Itau Unibanco Holding S.A., ADR 2,021,231 824,080 Itausa-Investimentos Itau S.A. (Preference Shares) 2,052,778 773,281 Kroton Educacional S.A. 2,167,496 367,066 Localiza Rent A Car S.A. 2,077,758 279,453 Lojas Renner S.A. 2,142,320 60,675 Magazine Luiza S.A. 1,847,947 396,972 Petrobras Distribuidora S.A. 1,913,817 176,462 Petroleo Brasileiro S.A., ADR 2,129,896 102,635 Raia Drogasil S.A. 1,841,232 555,371 Rumo S.A. (b) 2,053,135 167,046 Suzano Papel e Celulose S.A. 1,985,004 193,947 Telefonica Brasil S.A., ADR 1,887,104 191,958 Ultrapar Participacoes S.A. 1,772,446 145,314 Vale S.A., ADR 2,156,460 -------------- 47,413,263 -------------- CAYMAN ISLANDS -- 17.1% 172,877 AAC Technologies Holdings, Inc. 1,795,385 10,960 Alibaba Group Holding Ltd., ADR (b) 1,805,770 8,469 Baidu, Inc., ADR (b) 1,936,691 1,289,120 Country Garden Holdings Co., Ltd. 1,625,325 48,995 Ctrip.com International Ltd., ADR (b) 1,821,144 903,092 Geely Automobile Holdings Ltd. 1,799,643 66,372 iQIYI, Inc., ADR (b) 1,796,690 61,282 JD.com, Inc., ADR (b) 1,598,847 41,437 Momo, Inc., ADR (b) 1,814,941 9,702 NetEase, Inc., ADR 2,214,481 24,404 New Oriental Education & Technology Group, Inc., ADR (b) 1,806,140 66,395 Pagseguro Digital Ltd., Class A (b) 1,837,150 150,918 Sunny Optical Technology Group Co., Ltd. 1,740,839 64,802 TAL Education Group, ADR (b) 1,666,059 44,328 Tencent Holdings Ltd. 1,830,119 24,995 Weibo Corp., ADR (b) 1,827,884 659,971 Yatra Online, Inc. (b) 3,682,638 -------------- 32,599,746 -------------- CHINA -- 7.1% 4,265,112 Bank of China Ltd., Class H 1,896,005 2,166,424 China Construction Bank Corp., Class H 1,892,907 848,354 China Life Insurance Co., Ltd., Class H 1,926,809 SHARES DESCRIPTION VALUE ------------------------------------------------------------- CHINA (CONTINUED) 1,907,754 China Petroleum & Chemical Corp., Class H $ 1,910,593 2,604,393 Industrial and Commercial Bank of China Ltd., Class H 1,902,971 2,578,137 PetroChina Co., Ltd., Class H 2,087,974 198,915 Ping An Insurance (Group) Co. of China Ltd., Class H 2,020,061 -------------- 13,637,320 -------------- HONG KONG -- 2.0% 1,084,441 CNOOC Ltd. 2,147,175 760,000 CSPC Pharmaceutical Group Ltd. 1,613,520 -------------- 3,760,695 -------------- INDIA -- 16.8% 97,474 Dr. Reddy's Laboratories Ltd., ADR 3,372,600 33,823 HDFC Bank Ltd., ADR 3,182,744 355,685 ICICI Bank Ltd., ADR 3,019,766 329,827 Infosys Ltd., ADR 3,354,341 180,276 Larsen & Toubro Ltd., GDR 3,125,986 98,996 Reliance Industries Ltd., GDR (c) 3,400,513 78,832 State Bank of India, GDR (b) 2,912,842 184,650 Tata Motors Ltd., ADR (b) 2,836,224 268,016 Vedanta Ltd., ADR 3,430,605 665,097 Wipro Ltd., ADR 3,465,155 -------------- 32,100,776 -------------- ISLE OF MAN -- 1.9% 303,120 Eros International PLC (b) 3,652,596 -------------- JERSEY ISLAND -- 1.8% 66,086 WNS (Holdings) Ltd., ADR (b) 3,353,865 -------------- MAURITIUS -- 1.6% 108,223 MakeMyTrip Ltd. (b) 2,970,721 -------------- SOUTH KOREA -- 25.7% 8,119 Amorepacific Corp. 1,910,353 23,619 Celltrion Healthcare Co., Ltd. (d) 1,963,193 7,908 Celltrion, Inc. (d) 2,117,355 35,586 Hyundai Engineering & Construction Co., Ltd. 2,165,477 9,532 Hyundai Mobis Co., Ltd. 1,959,248 17,081 Hyundai Motor Co. 1,994,131 40,060 Hyundai Steel Co. 2,040,469 41,299 KB Financial Group, Inc. 2,017,945 70,006 Korea Electric Power Corp. 1,852,311 5,834 LG Chem Ltd. 1,922,314 100,479 LG Display Co., Ltd. 1,730,132 27,802 LG Electronics, Inc. 1,779,529 6,757 Lotte Chemical Corp. 1,693,438 2,839 NAVER Corp. 1,832,521 6,540 POSCO 1,736,335 4,612 Samsung Biologics Co., Ltd. (b) (c) 2,220,246 17,359 Samsung C&T Corp. 2,026,586 13,262 Samsung Electro-Mechanics Co., Ltd. 1,661,860 44,070 Samsung Electronics Co., Ltd. 1,845,437 Page 56 See Notes to Financial Statements <PAGE> FIRST TRUST BICK INDEX FUND (BICK) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) (CONTINUED) SOUTH KOREA (CONTINUED) 9,047 Samsung SDI Co., Ltd. $ 2,108,316 48,972 Shinhan Financial Group Co., Ltd. 1,986,694 27,947 SillaJen, Inc. (b) 2,579,917 25,725 SK Hynix, Inc. 1,695,287 11,063 SK Innovation Co., Ltd. 2,144,282 8,134 SK Telecom Co., Ltd. 2,067,873 -------------- 49,051,249 -------------- UNITED STATES -- 0.9% 49,590 Yum China Holdings, Inc. 1,741,105 -------------- TOTAL INVESTMENTS -- 99.8% 190,281,336 (Cost $195,706,803) (e) NET OTHER ASSETS AND LIABILITIES -- 0.2% 367,120 -------------- NET ASSETS -- 100.0% $ 190,648,456 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) Non-income producing security. (c) This security is restricted in the U.S. and cannot be offered for public sale without first being registered under the Securities Act of 1933, as amended. This security is not restricted on the foreign exchange where it trades freely without any additional registration. As such, it does not require the additional disclosure required of restricted securities. (d) Non-income producing security which makes payment- in-kind ("PIK") distributions. For the fiscal year ended September 30, 2018, the Fund received 0 and 239 shares of Celltrion Healthcare Co., Ltd. and Celltrion, Inc., respectively. (e) Aggregate cost for federal income tax purposes is $198,559,132. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $16,221,227 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $24,499,023. The net unrealized depreciation was $8,277,796. ADR - American Depositary Receipt GDR - Global Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 190,281,336 $ -- $ -- ============================================== * See Portfolio of Investments for country breakout. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- United States Dollar 43.8% South Korean Won 25.8 Brazilian Real 16.6 Hong Kong Dollar 13.8 ------ Total 100.0% ====== See Notes to Financial Statements Page 57 <PAGE> FIRST TRUST NASDAQ SMARTPHONE INDEX FUND (FONE) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 98.4% CANADA -- 3.5% 53,179 BlackBerry Ltd. (b) $ 605,177 -------------- CAYMAN ISLANDS -- 2.9% 4,366,252 FIH Mobile Ltd. (b) 501,974 -------------- CHINA -- 2.9% 51,568 BYD Co., Ltd., Class H (c) 370,208 2,671 China Telecom Corp., Ltd., ADR 132,001 -------------- 502,209 -------------- FINLAND -- 3.3% 102,237 Nokia OYJ, ADR 570,483 -------------- FRANCE -- 0.7% 7,769 Orange S.A. 123,892 -------------- GERMANY -- 0.7% 7,791 Deutsche Telekom AG 125,600 -------------- GUERNSEY -- 1.8% 4,680 Amdocs Ltd. 308,786 -------------- HONG KONG -- 4.4% 13,618 China Mobile Ltd. 134,208 869,427 Lenovo Group Ltd. 635,271 -------------- 769,479 -------------- ITALY -- 0.7% 197,402 Telecom Italia S.p.A. (b) 119,868 -------------- JAPAN -- 11.9% 201,700 Japan Display, Inc. (b) 221,902 4,750 KDDI Corp. 131,229 9,000 Kyocera Corp. 540,222 4,870 NTT DOCOMO, Inc. 130,944 1,400 SoftBank Group Corp. 141,331 9,900 Sony Corp. 606,965 10,200 Toshiba Corp. (b) 294,904 -------------- 2,067,497 -------------- NETHERLANDS -- 1.6% 14,832 STMicroelectronics N.V. 269,848 -------------- RUSSIA -- 0.8% 16,270 Mobile TeleSystems PJSC, ADR 138,783 -------------- SINGAPORE -- 3.1% 41,147 Flex Ltd. (b) 539,849 -------------- SOUTH KOREA -- 7.0% 9,131 KT Corp., ADR 135,596 8,224 LG Electronics, Inc. 526,395 13,037 Samsung Electronics Co., Ltd. 545,926 -------------- 1,207,917 -------------- SPAIN -- 0.7% 15,511 Telefonica S.A. 122,786 -------------- SWEDEN -- 1.8% 36,187 Telefonaktiebolaget LM Ericsson, Class B 321,177 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- TAIWAN -- 15.8% 390,767 HTC Corp. (b) $ 519,606 632,603 Inventec Corp. 567,692 37,314 MediaTek, Inc. 301,245 263,266 Pegatron Corp. 526,825 7,008 Taiwan Semiconductor Manufacturing Co., Ltd., ADR 309,473 801,297 Wistron Corp. 522,248 -------------- 2,747,089 -------------- UNITED KINGDOM -- 0.7% 58,974 Vodafone Group PLC 126,447 -------------- UNITED STATES -- 34.1% 251 Alphabet, Inc., Class C (b) 299,561 2,049 American Tower Corp. 297,720 3,091 Analog Devices, Inc. 285,794 2,493 Apple, Inc. 562,770 3,948 AT&T, Inc. 132,574 1,395 Broadcom, Inc. 344,188 9,985 CEVA, Inc. (b) 287,069 9,675 Ciena Corp. (b) 302,247 2,679 Crown Castle International Corp. 298,253 701 Equinix, Inc. 303,456 6,309 Intel Corp. 298,352 5,053 Maxim Integrated Products, Inc. 284,939 5,817 Micron Technology, Inc. (b) 263,103 2,380 Motorola Solutions, Inc. 309,733 4,447 QUALCOMM, Inc. 320,317 1,968 SBA Communications Corp. (b) 316,120 3,346 Skyworks Solutions, Inc. 303,516 6,331 Synaptics, Inc. (b) 288,820 2,718 Texas Instruments, Inc. 291,614 2,319 Verizon Communications, Inc. 123,811 -------------- 5,913,957 -------------- TOTAL COMMON STOCKS -- 98.4% 17,082,818 (Cost $16,118,436) -------------- MONEY MARKET FUNDS -- 0.0% 3,783 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 2.08% (d) (e) 3,783 (Cost $3,783) -------------- Page 58 See Notes to Financial Statements <PAGE> FIRST TRUST NASDAQ SMARTPHONE INDEX FUND (FONE) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 PRINCIPAL VALUE DESCRIPTION VALUE ------------------------------------------------------------- REPURCHASE AGREEMENTS -- 0.1% $ 4,155 BNP Paribas S.A., 2.24% (d), dated 09/28/18, due 10/01/18, with a maturity value of $4,156. Collateralized by U.S. Treasury Notes, interest rates of 2.625% to 3.500%, due 02/15/19 to 11/15/20. The value of the collateral including accrued interest is $4,240. (e) $ 4,155 19,414 JPMorgan Chase & Co., 2.15% (d), dated 09/28/18, due 10/01/18, with a maturity value of $19,418. Collateralized by U.S. Treasury Note, interest rate of 1.375%, due 08/31/23. The value of the collateral including accrued interest is $19,827. (e) 19,414 -------------- TOTAL REPURCHASE AGREEMENTS -- 0.1% 23,569 (Cost $23,569) -------------- TOTAL INVESTMENTS -- 98.5% 17,110,170 (Cost $16,145,788) (f) NET OTHER ASSETS AND LIABILITIES -- 1.5% 259,473 -------------- NET ASSETS -- 100.0% $ 17,369,643 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) Non-income producing security. (c) All or a portion of this security is on loan (see Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $25,837 and the total value of the collateral held by the Fund is $27,352. (d) Rate shown reflects yield as of September 30, 2018. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $16,535,846. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $1,785,570 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $1,211,246. The net unrealized appreciation was $574,324. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 17,082,818 $ -- $ -- Money Market Funds 3,783 -- -- Repurchase Agreements -- 23,569 -- ---------------------------------------------- Total Investments $ 17,086,601 $ 23,569 $ -- ============================================== * See Portfolio of Investments for country breakout. See Notes to Financial Statements Page 59 <PAGE> FIRST TRUST NASDAQ SMARTPHONE INDEX FUND (FONE) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 25,837 Non-cash Collateral(2) (25,837) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At September 30, 2018, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(3) $ 23,569 Non-cash Collateral(4) (23,569) -------------- Net Amount $ -- ============== (3) The amount is included in "Investments, at value" on the Statements of Assets and Liabilities. (4) At September 30, 2018, the value of the collateral received from each seller exceeded the value of the repurchase agreements. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- United States Dollar 50.7% New Taiwan Dollar 14.2 Japanese Yen 12.1 Hong Kong Dollar 9.6 South Korean Won 6.3 Euro 4.5 Swedish Krona 1.9 British Pound Sterling 0.7 ------ Total 100.0% ====== Page 60 See Notes to Financial Statements <PAGE> FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 99.6% BERMUDA -- 1.4% 153,592 Brilliance China Automotive Holdings Ltd. $ 248,389 -------------- CAYMAN ISLANDS -- 3.7% 42,869 China Harmony New Energy Auto Holding Ltd. 17,852 331,153 Geely Automobile Holdings Ltd. 659,908 -------------- 677,760 -------------- CHINA -- 5.2% 145,916 AviChina Industry & Technology Co., Ltd., Class H 96,179 96,056 BAIC Motor Corp., Ltd., Class H (b) 76,935 41,083 BYD Co., Ltd., Class H (c) 294,936 42,345 Chongqing Changan Automobile Co., Ltd., Class B 34,186 124,666 Dongfeng Motor Group Co., Ltd., Class H 128,355 184,785 Great Wall Motor Co., Ltd., Class H 117,787 167,496 Guangzhou Automobile Group Co., Ltd., Class H 185,504 -------------- 933,882 -------------- FRANCE -- 7.9% 26,400 Peugeot S.A. 712,039 8,432 Renault S.A. 729,352 -------------- 1,441,391 -------------- GERMANY -- 19.2% 7,501 Bayerische Motoren Werke AG 676,779 22,466 Daimler AG 1,417,672 9,120 Porsche Automobil Holding SE (Preference Shares) 614,149 4,442 Volkswagen AG (Preference Shares) 781,859 -------------- 3,490,459 -------------- ITALY -- 0.1% 9,386 Piaggio & C. S.p.A. 21,479 -------------- JAPAN -- 34.7% 49,035 Honda Motor Co., Ltd. 1,484,170 35,759 Mazda Motor Corp. 429,284 40,800 Mitsubishi Motors Corp. 287,992 77,576 Nissan Motor Co., Ltd. 726,123 3,500 Nissan Shatai Co., Ltd. 31,575 24,465 Subaru Corp. 749,324 11,159 Suzuki Motor Corp. 639,172 23,276 Toyota Motor Corp. 1,453,470 17,712 Yamaha Motor Co., Ltd. 496,503 -------------- 6,297,613 -------------- MALAYSIA -- 0.1% 18,093 UMW Holdings Bhd 21,947 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- SOUTH KOREA -- 6.7% 6,483 Hyundai Motor Co. $ 756,861 14,244 Kia Motors Corp. 450,723 -------------- 1,207,584 -------------- TAIWAN -- 0.2% 51,524 Yulon Motor Co., Ltd. 36,618 -------------- UNITED STATES -- 20.4% 139,625 Ford Motor Co. 1,291,531 40,387 General Motors Co. 1,359,831 9,324 Harley-Davidson, Inc. 422,377 2,413 Tesla, Inc. (c) (d) 638,890 -------------- 3,712,629 -------------- TOTAL COMMON STOCKS -- 99.6% 18,089,751 (Cost $20,158,419) -------------- MONEY MARKET FUNDS -- 0.6% 116,915 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 2.08% (e) (f) 116,915 (Cost $116,915) -------------- PRINCIPAL VALUE DESCRIPTION VALUE ------------------------------------------------------------- REPURCHASE AGREEMENTS -- 4.0% $ 128,415 BNP Paribas S.A., 2.24% (e), dated 09/28/18, due 10/01/18, with a maturity value of $128,439. Collateralized by U.S. Treasury Notes, interest rates of 2.625% to 3.500%, due 02/15/19 to 11/15/20. The value of the collateral including accrued interest is $131,028. (f) 128,415 600,025 JPMorgan Chase & Co., 2.15% (e), dated 09/28/18, due 10/01/18, with a maturity value of $600,133. Collateralized by U.S. Treasury Note, interest rate of 1.375%, due 08/31/23. The value of the collateral including accrued interest is $612,767. (f) 600,025 -------------- TOTAL REPURCHASE AGREEMENTS -- 4.0% 728,440 (Cost $728,440) -------------- TOTAL INVESTMENTS -- 104.2% 18,935,106 (Cost $21,003,774) (g) NET OTHER ASSETS AND LIABILITIES -- (4.2)% (767,669) -------------- NET ASSETS -- 100.0% $ 18,167,437 ============== See Notes to Financial Statements Page 61 <PAGE> FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) This security is restricted in the U.S. and cannot be offered for public sale without first being registered under the Securities Act of 1933, as amended. This security is not restricted on the foreign exchange where it trades freely without any additional registration. As such, it does not require the additional disclosure required of restricted securities. (c) All or a portion of this security is on loan (see Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $737,010 and the total value of the collateral held by the Fund is $845,355. (d) Non-income producing security. (e) Rate shown reflects yield as of September 30, 2018. (f) This security serves as collateral for securities on loan. (g) Aggregate cost for federal income tax purposes is $21,415,094. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $878,201 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $3,358,189. The net unrealized depreciation was $2,479,988. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 18,089,751 $ -- $ -- Money Market Funds 116,915 -- -- Repurchase Agreements -- 728,440 -- ---------------------------------------------- Total Investments $ 18,206,666 $ 728,440 $ -- ============================================== * See Portfolio of Investments for country breakout. --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 737,010 Non-cash Collateral(2) (737,010) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At September 30, 2018, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(3) $ 728,440 Non-cash Collateral(4) (728,440) -------------- Net Amount $ -- ============== (3) The amount is included in "Investments, at value" on the Statements of Assets and Liabilities. (4) At September 30, 2018, the value of the collateral received from each seller exceeded the value of the repurchase agreements. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- Japanese Yen 33.2% Euro 26.2 United States Dollar 24.1 Hong Kong Dollar 9.8 South Korean Won 6.4 New Taiwan Dollar 0.2 Malaysian Ringgit 0.1 ------ Total 100.0% ====== Page 62 See Notes to Financial Statements <PAGE> FIRST TRUST CLOUD COMPUTING ETF (SKYY) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 100.0% CANADA -- 4.6% 2,472,270 Open Text Corp. $ 94,045,151 -------------- GERMANY -- 4.5% 764,317 SAP SE, ADR 94,010,991 -------------- INDIA -- 1.3% 5,187,699 Wipro Ltd., ADR 27,027,912 -------------- ISRAEL -- 1.4% 245,101 Check Point Software Technologies Ltd. (b) 28,841,034 -------------- UNITED STATES -- 88.2% 336,538 Activision Blizzard, Inc. 27,996,596 95,723 Adobe Systems, Inc. (b) 25,840,424 1,143,653 Akamai Technologies, Inc. (b) 83,658,217 78,381 Alphabet, Inc., Class A (b) 94,612,138 52,909 Amazon.com, Inc. (b) 105,976,727 259,035 Apple, Inc. 58,474,561 2,018,460 Cisco Systems, Inc. 98,198,079 217,232 Equinix, Inc. 94,037,560 497,995 F5 Networks, Inc. (b) 99,310,163 449,524 Facebook, Inc., Class A (b) 73,928,717 3,176,319 Hewlett Packard Enterprise Co. 51,805,763 342,562 International Business Machines Corp. 51,798,800 118,363 Intuit, Inc. 26,915,746 282,615 j2 Global, Inc. 23,414,653 3,236,046 Juniper Networks, Inc. 96,984,299 489,756 Microsoft Corp. 56,013,394 1,261,832 NetApp, Inc. 108,378,750 245,182 Netflix, Inc. (b) 91,729,942 883,823 NetScout Systems, Inc. (b) 22,316,531 1,845,208 Oracle Corp. 95,138,924 530,772 Red Hat, Inc. (b) 72,333,608 666,569 salesforce.com, Inc. (b) 106,004,468 2,162,234 Teradata Corp. (b) 81,537,844 627,057 VMware, Inc., Class A (b) 97,858,515 19,592,785 Zynga, Inc., Class A (b) 78,567,068 -------------- 1,822,831,487 -------------- TOTAL INVESTMENTS -- 100.0% 2,066,756,575 (Cost $1,646,823,947) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% 382,933 -------------- NET ASSETS -- 100.0% $2,067,139,508 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes is $1,655,386,892. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $418,048,084 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $6,678,401. The net unrealized appreciation was $411,369,683. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 2,066,756,575 $ -- $ -- ============================================== * See Portfolio of Investments for country breakout. See Notes to Financial Statements Page 63 <PAGE> FIRST TRUST INTERNATIONAL IPO ETF (FPXI) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 99.8% AUSTRALIA -- 2.8% 194,722 South32 Ltd. $ 551,760 11,461 WiseTech Global Ltd. 183,007 -------------- 734,767 -------------- BRAZIL -- 2.6% 25,616 Hapvida Participacoes e Investimentos S.A. (b) (c) 152,229 11,894 IRB Brasil Resseguros S.A. 194,819 18,614 Notre Dame Intermedica Participacoes S.A. (c) 121,173 44,313 Petrobras Distribuidora S.A. 213,635 -------------- 681,856 -------------- CANADA -- 3.6% 4,150 Canada Goose Holdings, Inc. (c) 267,841 4,049 Shopify, Inc., Class A (c) 665,899 -------------- 933,740 -------------- CAYMAN ISLANDS -- 16.6% 140,394 CK Asset Holdings Ltd. 1,053,625 95,000 Country Garden Services Holdings Co., Ltd. (c) 161,401 4,799 GDS Holdings Ltd., ADR (c) 168,589 11,987 Pagseguro Digital Ltd., Class A (c) 331,680 22,411 Pinduoduo, Inc., ADR (c) 589,185 6,941 Sea Ltd., ADR (c) 95,994 44,214 Wuxi Biologics Cayman, Inc. (b) (c) 447,034 604,200 Xiaomi Corp., Class B (b) (c) 1,196,306 19,855 ZTO Express Cayman, Inc., ADR 328,997 -------------- 4,372,811 -------------- CHINA -- 9.9% 1,774,000 China Tower Corp. Ltd., Class H (b) (c) 258,338 419,908 China Vanke Co., Ltd., Class H 1,389,260 1,541,000 Postal Savings Bank of China Co., Ltd., Class H (b) 970,464 -------------- 2,618,062 -------------- DENMARK -- 5.2% 19,988 Orsted A/S (b) 1,357,761 -------------- FINLAND -- 0.4% 5,044 DNA OYJ 112,793 -------------- GERMANY -- 10.0% 7,072 Delivery Hero SE (b) (c) 340,097 4,093 Scout24 AG (b) 190,847 38,037 Siemens Healthineers AG (b) (c) 1,672,667 13,920 Uniper SE 428,450 -------------- 2,632,061 -------------- HONG KONG -- 1.7% 275,038 China Resources Pharmaceutical Group Ltd. (b) 436,359 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- IRELAND -- 0.7% 6,810 nVent Electric PLC $ 184,960 -------------- ITALY -- 3.1% 9,731 Moncler S.p.A. 419,162 49,681 Poste Italiane S.p.A. (b) 396,968 -------------- 816,130 -------------- JAPAN -- 18.7% 171,200 Japan Post Holdings Co., Ltd. 2,037,162 1,400 KH Neochem Co., Ltd. 54,524 6,100 Kyushu Railway Co. 185,760 64,500 Recruit Holdings Co., Ltd. 2,152,649 1,900 SanBio Co., Ltd. (c) 65,970 12,200 SG Holdings Co., Ltd. 319,657 7,500 Skylark Holdings Co., Ltd. 110,962 -------------- 4,926,684 -------------- MEXICO -- 0.4% 45,362 Banco del Bajio S.A. (b) 111,987 -------------- MULTI-NATIONAL -- 1.5% 386,448 HK Electric Investments & HK Electric Investments Ltd. 389,985 -------------- NETHERLANDS -- 11.6% 1,120 Adyen N.V. (b) (c) 914,163 5,591 ASR Nederland N.V. 266,538 9,324 Ferrari N.V. 1,283,919 12,973 NN Group N.V. 578,844 -------------- 3,043,464 -------------- SINGAPORE -- 0.8% 26,400 BOC Aviation Ltd. (b) 204,702 -------------- SPAIN -- 3.1% 4,755 Aena SME S.A. (b) 825,358 -------------- SWITZERLAND -- 0.7% 2,143 Sunrise Communications Group AG (b) 194,014 -------------- UNITED STATES -- 0.7% 3,314 Veoneer, Inc. (c) 182,502 -------------- UNITED KINGDOM -- 4.2% 8,982 Atlassian Corp. PLC, Class A (c) 863,529 5,230 Fevertree Drinks PLC 245,951 -------------- 1,109,480 -------------- VIRGIN ISLANDS -- 1.5% 5,680 Michael Kors Holdings Ltd. (c) 389,421 -------------- TOTAL INVESTMENTS -- 99.8% 26,258,897 (Cost $23,756,069) (d) NET OTHER ASSETS AND LIABILITIES -- 0.2% 62,803 -------------- NET ASSETS -- 100.0% $ 26,321,700 ============== Page 64 See Notes to Financial Statements <PAGE> FIRST TRUST INTERNATIONAL IPO ETF (FPXI) PORTFOLIO OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2018 (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) This security is restricted in the U.S. and cannot be offered for public sale without first being registered under the Securities Act of 1933, as amended. This security is not restricted on the foreign exchange where it trades freely without any additional registration. As such, it does not require the additional disclosure required of restricted securities. (c) Non-income producing security. (d) Aggregate cost for federal income tax purposes is $23,793,958. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $3,366,835 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $901,896. The net unrealized appreciation was $2,464,939. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 26,258,897 $ -- $ -- ============================================== * See Portfolio of Investments for country breakout. % OF TOTAL CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS ------------------------------------------------------------- Euro 28.3% Hong Kong Dollar 24.8 Japanese Yen 18.8 United States Dollar 15.5 Danish Krone 5.2 Australian Dollar 2.8 Brazilian Real 2.6 British Pound Sterling 0.9 Swiss Franc 0.7 Mexican Peso 0.4 ------ Total 100.0% ====== See Notes to Financial Statements Page 65 <PAGE> FIRST TRUST NASDAQ CYBERSECURITY ETF (CIBR) PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2018 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 100.3% FRANCE -- 3.0% 178,531 Thales S.A. $ 25,361,107 -------------- ISRAEL -- 7.0% 216,952 Check Point Software Technologies Ltd. (b) 25,528,742 334,226 CyberArk Software Ltd. (b) 26,684,604 264,856 Radware Ltd. (b) 7,010,738 -------------- 59,224,084 -------------- JAPAN -- 3.0% 399,636 Trend Micro, Inc. 25,711,487 -------------- JERSEY -- 1.6% 311,454 Mimecast Ltd. (b) 13,043,694 -------------- SOUTH KOREA -- 1.0% 175,720 Ahnlab, Inc. 8,411,748 -------------- UNITED KINGDOM -- 5.8% 894,721 Avast PLC (b) (c) 3,306,137 3,200,296 BAE Systems PLC 26,270,775 2,010,746 Sophos Group PLC (c) 12,789,605 343,470 Ultra Electronics Holdings PLC 7,109,178 -------------- 49,475,695 -------------- UNITED STATES -- 78.9% 335,470 Akamai Technologies, Inc. (b) 24,539,630 125,579 CACI International, Inc., Class A (b) 23,125,373 1,055,354 Cisco Systems, Inc. 51,342,972 133,286 F5 Networks, Inc. (b) 26,579,894 1,518,495 FireEye, Inc. (b) 25,814,415 620,070 ForeScout Technologies, Inc. (b) 23,413,843 300,947 Fortinet, Inc. (b) 27,768,380 337,815 Imperva, Inc. (b) 15,691,507 253,220 Itron, Inc. (b) 16,256,724 886,633 Juniper Networks, Inc. 26,572,391 525,041 KeyW Holding (The) Corp. (b) 4,546,855 136,022 ManTech International Corp., Class A 8,610,193 234,008 OneSpan, Inc. (b) 4,457,852 218,107 Palo Alto Networks, Inc. (b) 49,130,783 212,448 Proofpoint, Inc. (b) 22,589,596 276,845 Qualys, Inc. (b) 24,666,889 252,780 Raytheon Co. 52,239,515 277,906 Ribbon Communications, Inc. (b) 1,898,098 762,125 SailPoint Technologies Holding, Inc. (b) 25,927,493 217,747 Science Applications International Corp. 17,550,408 393,397 Splunk, Inc. (b) 47,565,631 2,500,701 Symantec Corp. 53,214,917 713,666 Tenable Holdings, Inc. (b) 27,747,334 341,093 Varonis Systems, Inc. (b) 24,985,062 323,970 Verint Systems, Inc. (b) 16,230,897 158,923 VeriSign, Inc. (b) 25,446,751 191,854 Zix Corp. (b) 1,064,790 -------------- 668,978,193 -------------- DESCRIPTION VALUE ------------------------------------------------------------- TOTAL INVESTMENTS -- 100.3% $ 850,206,008 (Cost $732,734,877) (d) NET OTHER ASSETS AND LIABILITIES -- (0.3)% (2,532,522) -------------- NET ASSETS -- 100.0% $ 847,673,486 ============== (a) Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. (b) Non-income producing security. (c) This security is restricted in the U.S. and cannot be offered for public sale without first being registered under the Securities Act of 1933, as amended. This security is not restricted on the foreign exchange where it trades freely without any additional registration. As such, it does not require the additional disclosure required of restricted securities. (d) Aggregate cost for federal income tax purposes is $745,654,871. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $117,221,320 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $12,670,183. The net unrealized appreciation was $104,551,137. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of September 30, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------- Common Stocks* $ 850,206,008 $ -- $ -- ============================================== * See Portfolio of Investments for country breakout. Page 66 See Notes to Financial Statements <PAGE> This page intentionally left blank. <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2018 <TABLE> <CAPTION> FIRST TRUST FIRST TRUST FTSE EPRA/NAREIT STOXX(R) EUROPEAN DEVELOPED MARKETS SELECT DIVIDEND REAL ESTATE INDEX FUND INDEX FUND (FDD) (FFR) ---------------------- ---------------------- ASSETS: <S> <C> <C> Investments, at value ................................................. $ 452,175,110 $ 44,932,674 Cash .................................................................. -- -- Foreign currency, at value ............................................ -- 14,896 Due from authorized participant ....................................... -- -- Receivables: Capital shares sold ................................................ -- -- Investment securities sold ......................................... 111,522 -- Reclaims ........................................................... 2,719,238 35,694 Dividends .......................................................... 489,723 165,873 Securities lending income .......................................... -- -- From investment advisor ............................................ -- -- Prepaid expenses ...................................................... 2,029 1,273 ---------------- ---------------- TOTAL ASSETS ....................................................... 455,497,622 45,150,410 ---------------- ---------------- LIABILITIES: Due to custodian ...................................................... -- -- Due to custodian foreign currency ..................................... 111,495 -- Payables: Investment securities purchased .................................... -- -- Investment advisory fees ........................................... 151,913 8,827 Licensing fees ..................................................... 250,664 13,820 Shareholder reporting fees ......................................... 31,661 6,108 Audit and tax fees ................................................. 23,675 27,250 Trustees' fees ..................................................... 73 4 Collateral for securities on loan .................................. -- -- Foreign capital gains tax .......................................... -- -- Other liabilities ..................................................... 104,187 20,707 ---------------- ---------------- TOTAL LIABILITIES .................................................. 673,668 76,716 ---------------- ---------------- NET ASSETS ............................................................ $ 454,823,954 $ 45,073,694 ================ ================ NET ASSETS CONSIST OF: Paid-in capital ....................................................... $ 465,798,266 $ 42,231,984 Par value ............................................................. 346,533 10,000 Accumulated distributable earnings (loss) ............................. (11,320,845) 2,831,710 ---------------- ---------------- NET ASSETS ............................................................ $ 454,823,954 $ 45,073,694 ================ ================ NET ASSET VALUE, per share ............................................ $ 13.12 $ 45.07 ================ ================ Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) ............................. 34,653,334 1,000,002 ================ ================ Investments, at cost .................................................. $ 446,680,594 $ 40,861,131 ================ ================ Foreign currency, at cost (proceeds) .................................. $ (111,495) $ 14,947 ================ ================ Securities on loan, at value .......................................... $ -- $ -- ================ ================ </TABLE> Page 68 See Notes to Financial Statements <PAGE> <TABLE> <CAPTION> FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST GLOBAL NASDAQ(R) CLEAN FIRST TRUST DOW JONES GLOBAL GLOBAL ENGINEERING EDGE(R) SMART GRID INDXX GLOBAL SELECT DIVIDEND WIND ENERGY AND CONSTRUCTION INFRASTRUCTURE NATURAL RESOURCES INDEX FUND ETF ETF INDEX FUND INCOME ETF (FGD) (FAN) (FLM) (GRID) (FTRI) --------------------- --------------------- --------------------- --------------------- --------------------- <S> <C> <C> <C> <C> $ 481,012,567 $ 82,564,836 $ 14,423,442 $ 33,633,738 $ 8,887,123 -- -- -- 1,543,267 -- 350,234 -- 13,458 1,269,937 2 -- -- -- -- -- -- -- -- -- -- 174,608 71,923 -- -- -- 1,364,123 222,833 12,073 37,694 14,389 2,059,584 54,895 39,152 18,419 21,374 -- 4,064 434 930 -- -- -- 2,276 -- -- 1,379 1,284 1,264 10 -- --------------- --------------- --------------- --------------- --------------- 484,962,495 82,919,835 14,492,099 36,503,995 8,922,888 --------------- --------------- --------------- --------------- --------------- 161,214 4 2,299 -- 9,910 -- 70,909 -- -- -- -- -- -- 2,840,339 -- 158,883 27,426 -- 10,133 5,021 193,118 20,976 4,418 7,836 -- 31,463 11,385 4,323 5,604 -- 27,250 26,491 26,491 26,491 -- 52 10 3 4 -- -- 3,375,883 256,145 269,716 -- -- -- -- -- -- 110,529 24,390 4,103 10,798 171 --------------- --------------- --------------- --------------- --------------- 682,509 3,557,474 297,782 3,170,921 15,102 --------------- --------------- --------------- --------------- --------------- $ 484,279,986 $ 79,362,361 $ 14,194,317 $ 33,333,074 $ 8,907,786 =============== =============== =============== =============== =============== $ 539,539,637 $ 142,004,410 $ 20,007,729 $ 34,092,909 $ 69,261,809 192,500 63,500 2,500 7,000 7,000 (55,452,151) (62,705,549) (5,815,912) (766,835) (60,361,023) --------------- --------------- --------------- --------------- --------------- $ 484,279,986 $ 79,362,361 $ 14,194,317 $ 33,333,074 $ 8,907,786 =============== =============== =============== =============== =============== $ 25.16 $ 12.50 $ 56.78 $ 47.62 $ 12.73 =============== =============== =============== =============== =============== 19,250,002 6,350,002 250,002 700,002 700,002 =============== =============== =============== =============== =============== $ 477,123,703 $ 84,528,037 $ 12,915,101 $ 32,878,250 $ 7,979,662 =============== =============== =============== =============== =============== $ 349,953 $ (71,862) $ 13,431 $ 1,291,586 $ 2 =============== =============== =============== =============== =============== $ -- $ 3,012,125 $ 235,881 $ 241,453 $ -- =============== =============== =============== =============== =============== </TABLE> See Notes to Financial Statements Page 69 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) SEPTEMBER 30, 2018 <TABLE> <CAPTION> FIRST TRUST FIRST TRUST INDXX GLOBAL BICK AGRICULTURE ETF INDEX FUND (FTAG) (BICK) ---------------------- ---------------------- ASSETS: <S> <C> <C> Investments, at value ................................................. $ 4,958,786 $ 190,281,336 Cash .................................................................. 7,975 -- Foreign currency, at value ............................................ 50 7,262 Due from authorized participant ....................................... -- -- Receivables: Capital shares sold ................................................ -- -- Investment securities sold ......................................... -- -- Reclaims ........................................................... 19,545 29,763 Dividends .......................................................... 7,665 431,510 Securities lending income .......................................... -- -- From investment advisor ............................................ -- -- Prepaid expenses ...................................................... -- -- ---------------- ---------------- TOTAL ASSETS ....................................................... 4,994,021 190,749,871 ---------------- ---------------- LIABILITIES: Due to custodian ...................................................... -- 447 Due to custodian foreign currency ..................................... -- -- Payables: Investment securities purchased .................................... -- -- Investment advisory fees ........................................... 2,875 100,968 Licensing fees ..................................................... -- -- Shareholder reporting fees ......................................... -- -- Audit and tax fees ................................................. -- -- Trustees' fees ..................................................... -- -- Collateral for securities on loan .................................. -- -- Foreign capital gains tax .......................................... 12,283 -- Other liabilities ..................................................... -- -- ---------------- ---------------- TOTAL LIABILITIES .................................................. 15,158 101,415 ---------------- ---------------- NET ASSETS ............................................................ $ 4,978,863 $ 190,648,456 ================ ================ NET ASSETS CONSIST OF: Paid-in capital ....................................................... $ 23,895,612 $ 209,492,634 Par value ............................................................. 1,899 72,000 Accumulated distributable earnings (loss) ............................. (18,918,648) (18,916,178) ---------------- ---------------- NET ASSETS ............................................................ $ 4,978,863 $ 190,648,456 ================ ================ NET ASSET VALUE, per share ............................................ $ 26.21 $ 26.48 ================ ================ Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) ............................. 189,928 7,200,002 ================ ================ Investments, at cost .................................................. $ 4,860,083 $ 195,706,803 ================ ================ Foreign currency, at cost (proceeds) .................................. $ 50 $ 7,260 ================ ================ Securities on loan, at value .......................................... $ -- $ -- ================ ================ </TABLE> Page 70 See Notes to Financial Statements <PAGE> <TABLE> <CAPTION> FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ NASDAQ GLOBAL CLOUD FIRST TRUST NASDAQ SMARTPHONE AUTO COMPUTING INTERNATIONAL CYBERSECURITY INDEX FUND INDEX FUND ETF IPO ETF ETF (FONE) (CARZ) (SKYY) (FPXI) (CIBR) --------------------- --------------------- --------------------- --------------------- --------------------- <S> <C> <C> <C> <C> $ 17,110,170 $ 18,935,106 $ 2,066,756,575 $ 26,258,897 $ 850,206,008 273,471 -- 901,384 -- -- 3,151 1,477 -- 5,715 -- -- -- -- -- 45,337 -- -- -- -- 4,274,003 -- -- -- 10,805 1,050,832 1,384 27,199 132,205 13,883 7,130 17,773 72,920 342,599 61,043 84,843 997 1,459 -- -- -- -- -- -- -- -- -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- 17,406,946 19,038,161 2,068,132,763 26,350,343 855,668,153 --------------- --------------- --------------- --------------- --------------- -- 13,970 -- 13,670 2,300,256 -- -- -- -- 1,069 -- 980 -- -- 5,283,641 9,951 10,419 993,255 14,973 409,701 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 27,352 845,355 -- -- -- -- -- -- -- -- -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- 37,303 870,724 993,255 28,643 7,994,667 --------------- --------------- --------------- --------------- --------------- $ 17,369,643 $ 18,167,437 $ 2,067,139,508 $ 26,321,700 $ 847,673,486 =============== =============== =============== =============== =============== $ 17,530,619 $ 23,141,456 $ 1,661,107,577 $ 25,559,441 $ 752,631,697 3,500 5,000 364,500 7,500 297,500 (164,476) (4,979,019) 405,667,431 754,759 94,744,289 --------------- --------------- --------------- --------------- --------------- $ 17,369,643 $ 18,167,437 $ 2,067,139,508 $ 26,321,700 $ 847,673,486 =============== =============== =============== =============== =============== $ 49.63 $ 36.33 $ 56.71 $ 35.10 $ 28.49 =============== =============== =============== =============== =============== 350,002 500,002 36,450,002 750,002 29,750,002 =============== =============== =============== =============== =============== $ 16,145,788 $ 21,003,774 $ 1,646,823,947 $ 23,756,069 $ 732,734,877 =============== =============== =============== =============== =============== $ 3,150 $ 1,477 $ -- $ 5,715 $ (1,069) =============== =============== =============== =============== =============== $ 25,837 $ 737,010 $ -- $ -- $ -- =============== =============== =============== =============== =============== </TABLE> See Notes to Financial Statements Page 71 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2018 <TABLE> <CAPTION> FIRST TRUST FIRST TRUST FTSE EPRA/NAREIT STOXX(R) EUROPEAN DEVELOPED MARKETS SELECT DIVIDEND REAL ESTATE INDEX FUND INDEX FUND (FDD) (FFR) ---------------------- ---------------------- <S> <C> <C> INVESTMENT INCOME: Dividends ............................................................. $ 28,612,398 $ 2,010,933 Securities lending income (net of fees) ............................... -- -- Foreign withholding tax ............................................... (2,711,261) (83,252) ---------------- ---------------- Total investment income ............................................ 25,901,137 1,927,681 ---------------- ---------------- EXPENSES: Investment advisory fees .............................................. 2,147,598 188,905 Licensing fees ........................................................ 313,570 56,618 Accounting and administration fees .................................... 270,503 29,470 Custodian fees ........................................................ 123,081 49,282 Shareholder reporting fees ............................................ 72,113 9,292 Audit and tax fees .................................................... 70,714 46,289 Transfer agent fees ................................................... 26,840 2,359 Legal fees ............................................................ 21,377 1,798 Listing fees .......................................................... 8,865 7,001 Trustees' fees and expenses ........................................... 7,705 7,053 Registration and filing fees .......................................... (1,668) -- Other expenses ........................................................ 10,287 2,837 ---------------- ---------------- Total expenses ..................................................... 3,070,985 400,904 Less fees waived and expenses reimbursed by the investment advisor .......................................... -- (117,546) ---------------- ---------------- Net expenses ....................................................... 3,070,985 283,358 ---------------- ---------------- NET INVESTMENT INCOME (LOSS) .......................................... 22,830,152 1,644,323 ---------------- ---------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments ........................................................ 4,177,532 130,745 In-kind redemptions ................................................ 8,452,310 1,139,313 Foreign currency transactions ...................................... (147,461) (53,084) Foreign capital gains tax .......................................... -- -- ---------------- ---------------- Net realized gain (loss) .............................................. 12,482,381 1,216,974 ---------------- ---------------- Net change in unrealized appreciation (depreciation) on: Investments ........................................................ (31,493,374) (1,124,589) Foreign currency translation (68,185) (1,089) Deferred foreign capital gains tax .................................... -- -- ---------------- ---------------- Net change in unrealized appreciation (depreciation) .................. (31,561,559) (1,125,678) ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ............................... (19,079,178) 91,296 ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................................................... $ 3,750,974 $ 1,735,619 ================ ================ </TABLE> (a) Fund is subject to a unitary fee (see Note 3 in the Notes to Financial Statements). Page 72 See Notes to Financial Statements <PAGE> <TABLE> <CAPTION> FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST GLOBAL NASDAQ(R) CLEAN FIRST TRUST DOW JONES GLOBAL GLOBAL ENGINEERING EDGE(R) SMART GRID INDXX GLOBAL SELECT DIVIDEND WIND ENERGY AND CONSTRUCTION INFRASTRUCTURE NATURAL RESOURCES INDEX FUND ETF ETF INDEX FUND INCOME ETF (FGD) (FAN) (FLM) (GRID) (FTRI) --------------------- --------------------- --------------------- --------------------- --------------------- <S> <C> <C> <C> <C> $ 27,442,697 $ 2,350,171 $ 421,761 $ 597,682 $ 424,133 -- 464,758 23,323 52,817 3,137 (2,256,358) (243,568) (42,381) (55,341) (33,761) --------------- --------------- --------------- --------------- --------------- 25,186,339 2,571,361 402,703 595,158 393,509 --------------- --------------- --------------- --------------- --------------- 1,993,748 366,637 74,994 132,542 62,078 (a) 282,275 91,659 18,748 29,822 -- 252,271 47,554 11,612 18,080 -- 137,857 41,042 9,238 11,570 -- 65,430 22,027 6,496 9,410 -- 74,289 26,130 26,130 26,130 -- 24,911 4,580 937 1,656 -- 19,304 3,516 745 1,328 -- 7,001 7,507 7,507 6,009 -- 7,635 7,111 7,019 7,039 -- 3,867 600 (6) 1,223 -- 11,105 2,978 1,238 1,079 -- --------------- --------------- --------------- --------------- --------------- 2,879,693 621,341 164,658 245,888 62,078 -- (71,385) (33,419) (13,940) -- --------------- --------------- --------------- --------------- --------------- 2,879,693 549,956 131,239 231,948 62,078 --------------- --------------- --------------- --------------- --------------- 22,306,646 2,021,405 271,464 363,210 331,431 --------------- --------------- --------------- --------------- --------------- 3,173,160 849,663 (260,155) 1,450,406 430,043 3,754,610 6,852,365 1,604,091 1,649,447 79,687 (219,886) 1,065 (2,921) (7,897) (6,778) -- -- -- -- 98 --------------- --------------- --------------- --------------- --------------- 6,707,884 7,703,093 1,341,015 3,091,956 503,050 --------------- --------------- --------------- --------------- --------------- (18,666,430) (12,603,156) (1,766,839) (4,082,396) 89,426 (21,287) (9,348) (416) 7,333 (258) -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- (18,687,717) (12,612,504) (1,767,255) (4,075,063) 89,168 --------------- --------------- --------------- --------------- --------------- (11,979,833) (4,909,411) (426,240) (983,107) 592,218 --------------- --------------- --------------- --------------- --------------- $ 10,326,813 $ (2,888,006) $ (154,776) $ (619,897) $ 923,649 =============== =============== =============== =============== =============== </TABLE> See Notes to Financial Statements Page 73 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II STATEMENTS OF OPERATIONS (CONTINUED) FOR THE YEAR ENDED SEPTEMBER 30, 2018 <TABLE> <CAPTION> FIRST TRUST INDXX GLOBAL FIRST TRUST AGRICULTURE BICK ETF INDEX FUND (FTAG) (BICK) ---------------------- ---------------------- <S> <C> <C> INVESTMENT INCOME: Dividends ............................................................. $ 164,370 $ 4,737,550 Securities lending income (net of fees) ............................... -- -- Foreign withholding tax ............................................... (14,430) (250,445) ---------------- ---------------- Total investment income ............................................ 149,940 4,487,105 ---------------- ---------------- EXPENSES: Investment advisory fees .............................................. 46,449 (a) 1,458,551 (a) Licensing fees ........................................................ -- -- Accounting and administration fees .................................... -- -- Custodian fees ........................................................ -- -- Shareholder reporting fees ............................................ -- -- Audit and tax fees .................................................... -- -- Transfer agent fees ................................................... -- -- Legal fees ............................................................ -- -- Listing fees .......................................................... -- -- Trustees' fees and expenses ........................................... -- -- Registration and filing fees .......................................... -- -- Other expenses ........................................................ -- -- ---------------- ---------------- Total expenses ..................................................... 46,449 1,458,551 Less fees waived and expenses reimbursed by the investment advisor .......................................... -- -- ---------------- ---------------- Net expenses ....................................................... 46,449 1,458,551 ---------------- ---------------- NET INVESTMENT INCOME (LOSS) .......................................... 103,491 3,028,554 ---------------- ---------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments ........................................................ 126,891 (403,119) In-kind redemptions ................................................ 696,621 1,880,050 Foreign currency transactions ...................................... (32) (109,293) Foreign capital gains tax .......................................... (211) -- ---------------- ---------------- Net realized gain (loss)............................................... 823,269 1,367,638 ---------------- ---------------- Net change in unrealized appreciation (depreciation) on: Investments ........................................................ (1,038,565) (22,490,430) Foreign currency translation ....................................... (426) 1,822 Deferred foreign capital gains tax..................................... (12,283) -- ---------------- ---------------- Net change in unrealized appreciation (depreciation) .................. (1,051,274) (22,488,608) ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ............................... (228,005) (21,120,970) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................................................... $ (124,514) $ (18,092,416) ================ ================ </TABLE> (a) Fund is subject to a unitary fee (see Note 3 in the Notes to Financial Statements). Page 74 See Notes to Financial Statements <PAGE> <TABLE> <CAPTION> FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ NASDAQ GLOBAL CLOUD FIRST TRUST NASDAQ SMARTPHONE AUTO COMPUTING INTERNATIONAL CYBERSECURITY INDEX FUND INDEX FUND ETF IPO ETF ETF (FONE) (CARZ) (SKYY) (FPXI) (CIBR) --------------------- --------------------- --------------------- --------------------- --------------------- <S> <C> <C> <C> <C> $ 351,734 $ 679,989 $ 13,416,398 $ 578,734 $ 3,466,780 9,992 17,551 88,588 -- -- (32,894) (63,211) (302,073) (53,218) (33,228) --------------- --------------- --------------- --------------- --------------- 328,832 634,329 13,202,913 525,516 3,433,552 --------------- --------------- --------------- --------------- --------------- 113,068 (a) 141,454 (a) 9,050,487 (a) 173,527 (a) 3,200,469 (a) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- 113,068 141,454 9,050,487 173,527 3,200,469 -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- 113,068 141,454 9,050,487 173,527 3,200,469 --------------- --------------- --------------- --------------- --------------- 215,764 492,875 4,152,426 351,989 233,083 --------------- --------------- --------------- --------------- --------------- (156,330) (68,355) (1,909,741) (1,296,472) (11,581,877) 3,465,592 279,502 199,673,171 408,082 50,902,700 (10,044) 1,507 (77) 261 36,193 -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- 3,299,218 212,654 197,763,353 (888,129) 39,357,016 --------------- --------------- --------------- --------------- --------------- (3,474,380) (2,271,423) 242,652,589 972,400 94,157,439 (124) (2,931) 73 (834) (571) -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- (3,474,504) (2,274,354) 242,652,662 971,566 94,156,868 --------------- --------------- --------------- --------------- --------------- (175,286) (2,061,700) 440,416,015 83,437 133,513,884 --------------- --------------- --------------- --------------- --------------- $ 40,478 $ (1,568,825) $ 444,568,441 $ 435,426 $ 133,746,967 =============== =============== =============== =============== =============== </TABLE> See Notes to Financial Statements Page 75 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II STATEMENTS OF CHANGES IN NET ASSETS <TABLE> <CAPTION> FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD) --------------------------------------- Year Ended Year Ended 9/30/2018 9/30/2017 ------------------ ------------------ OPERATIONS: <S> <C> <C> Net investment income (loss)........................................................ $ 22,830,152 $ 12,496,889 Net realized gain (loss)............................................................ 12,482,381 (9,556,662) Net change in unrealized appreciation (depreciation)................................ (31,561,559) 56,620,547 ---------------- ---------------- Net increase (decrease) in net assets resulting from operations.................................................................. 3,750,974 59,560,774 ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Investment operations............................................................... (22,961,086) ---------------- Net investment income............................................................... (12,541,609) ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold........................................................... 33,402,329 329,934,695 Cost of shares redeemed............................................................. (88,895,004) (12,917,222) ---------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions.................................................... (55,492,675) 317,017,473 ---------------- ---------------- Total increase (decrease) in net assets............................................. (74,702,787) 364,036,638 NET ASSETS: Beginning of period................................................................. 529,526,741 165,490,103 ---------------- ---------------- End of period....................................................................... $ 454,823,954 $ 529,526,741 ================ ================ Accumulated net investment income (loss) at end of period................................................................. $ 483,376 ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period............................................. 38,903,334 14,003,334 Shares sold......................................................................... 2,400,000 26,000,000 Shares redeemed..................................................................... (6,650,000) (1,100,000) ---------------- ---------------- Shares outstanding, end of period................................................... 34,653,334 38,903,334 ================ ================ </TABLE> Page 76 See Notes to Financial Statements <PAGE> <TABLE> <CAPTION> FIRST TRUST FIRST TRUST FTSE EPRA/NAREIT DOW JONES FIRST TRUST DEVELOPED MARKETS REAL ESTATE GLOBAL SELECT DIVIDEND GLOBAL WIND ENERGY INDEX FUND INDEX FUND ETF (FFR) (FGD) (FAN) ---------------------------------------- --------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended 9/30/2018 9/30/2017 9/30/2018 9/30/2017 9/30/2018 9/30/2017 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ <S> <C> <C> <C> <C> <C> $ 1,644,323 $ 1,484,066 $ 22,306,646 $ 17,251,679 $ 2,021,405 $ 2,392,743 1,216,974 4,188,825 6,707,884 (10,025,224) 7,703,093 (1,895,898) (1,125,678) (5,828,016) (18,687,717) 45,568,289 (12,612,504) 3,453,323 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 1,735,619 (155,125) 10,326,813 52,794,744 (2,888,006) 3,950,168 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- (1,810,508) (22,052,312) (1,611,016) ---------------- ---------------- ---------------- (2,038,758) (16,896,832) (5,861,912) ---------------- ---------------- ---------------- -- 2,148,061 58,302,537 96,718,906 17,312,970 25,969,586 (6,551,405) (19,830,022) (33,183,708) (5,798,222) (33,918,808) (10,686,531) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- (6,551,405) (17,681,961) 25,118,829 90,920,684 (16,605,838) 15,283,055 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- (6,626,294) (19,875,844) 13,393,330 126,818,596 (21,104,860) 13,371,311 51,699,988 71,575,832 470,886,656 344,068,060 100,467,221 87,095,910 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- $ 45,073,694 $ 51,699,988 $ 484,279,986 $ 470,886,656 $ 79,362,361 $ 100,467,221 ================ ================ ================ ================ ================ ================ $ (218,502) $ 1,714,742 $ (1,330,446) ================ ================ ================ 1,150,002 1,550,002 18,300,002 14,650,002 7,650,002 6,550,002 -- 50,000 2,250,000 3,900,000 1,300,000 2,000,000 (150,000) (450,000) (1,300,000) (250,000) (2,600,000) (900,000) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 1,000,002 1,150,002 19,250,002 18,300,002 6,350,002 7,650,002 ================ ================ ================ ================ ================ ================ </TABLE> See Notes to Financial Statements Page 77 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) <TABLE> <CAPTION> FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF (FLM) --------------------------------------- Year Ended Year Ended 9/30/2018 9/30/2017 ------------------ ------------------ OPERATIONS: <S> <C> <C> Net investment income (loss)........................................................ $ 271,464 $ 187,475 Net realized gain (loss)............................................................ 1,341,015 (231,704) Net change in unrealized appreciation (depreciation)................................ (1,767,255) 2,711,316 ---------------- ---------------- Net increase (decrease) in net assets resulting from operations.................................................................. (154,776) 2,667,087 ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Investment operations............................................................... (341,187) ---------------- Net investment income............................................................... (188,882) ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold........................................................... 3,108,725 -- Cost of shares redeemed............................................................. (5,484,426) -- ---------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions.................................................... (2,375,701) -- ---------------- ---------------- Total increase (decrease) in net assets............................................. (2,871,664) 2,478,205 NET ASSETS: Beginning of period................................................................. 17,065,981 14,587,776 ---------------- ---------------- End of period....................................................................... $ 14,194,317 $ 17,065,981 ================ ================ Accumulated net investment income (loss) at end of period................................................................. $ 17,592 ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period............................................. 300,002 300,002 Shares sold......................................................................... 50,000 -- Shares redeemed..................................................................... (100,000) -- ---------------- ---------------- Shares outstanding, end of period................................................... 250,002 300,002 ================ ================ </TABLE> Page 78 See Notes to Financial Statements <PAGE> <TABLE> <CAPTION> FIRST TRUST FIRST TRUST NASDAQ(R) CLEAN EDGE(R) INDXX GLOBAL FIRST TRUST SMART GRID INFRASTRUCTURE NATURAL RESOURCES INDXX GLOBAL INDEX FUND INCOME ETF AGRICULTURE ETF (GRID) (FTRI) (FTAG) ---------------------------------------- --------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended 9/30/2018 9/30/2017 9/30/2018 9/30/2017 9/30/2018 9/30/2017 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ <S> <C> <C> <C> <C> <C> $ 363,210 $ 294,415 $ 331,431 $ 340,706 $ 103,491 $ 106,868 3,091,956 1,708,918 503,050 516,077 823,269 178,502 (4,075,063) 3,069,138 89,168 623,992 (1,051,274) 1,083,745 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- (619,897) 5,072,471 923,649 1,480,775 (124,514) 1,369,115 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- (398,796) (320,671) (90,971) ---------------- ---------------- ---------------- (281,786) (342,401) (105,711) ---------------- ---------------- ---------------- 12,522,625 14,616,905 -- -- 1,350,249 2,460,039 (5,121,525) (6,172,180) (608,642) (2,888,270) (3,972,391) -- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 7,401,100 8,444,725 (608,642) (2,888,270) (2,622,142) 2,460,039 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 6,382,407 13,235,410 (5,664) (1,749,896) (2,837,627) 3,723,443 26,950,667 13,715,257 8,913,450 10,663,346 7,816,490 4,093,047 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- $ 33,333,074 $ 26,950,667 $ 8,907,786 $ 8,913,450 $ 4,978,863 $ 7,816,490 ================ ================ ================ ================ ================ ================ $ 34,782 $ 15,535 $ 6,190 ================ ================ ================ 550,002 350,002 750,002 1,000,002 289,928 189,928 250,000 350,000 -- -- 50,000 100,000 (100,000) (150,000) (50,000) (250,000) (150,000) -- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 700,002 550,002 700,002 750,002 189,928 289,928 ================ ================ ================ ================ ================ ================ </TABLE> See Notes to Financial Statements Page 79 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) <TABLE> <CAPTION> FIRST TRUST BICK INDEX FUND (BICK) --------------------------------------- Year Ended Year Ended 9/30/2018 9/30/2017 ------------------ ------------------ OPERATIONS: <S> <C> <C> Net investment income (loss)........................................................ $ 3,028,554 $ 1,458,713 Net realized gain (loss)............................................................ 1,367,638 5,621,591 Net change in unrealized appreciation (depreciation)................................ (22,488,608) 16,538,217 ---------------- ---------------- Net increase (decrease) in net assets resulting from operations.................................................................. (18,092,416) 23,618,521 ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Investment operations............................................................... (2,678,851) ---------------- Net investment income............................................................... (1,503,661) ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold........................................................... 38,356,789 194,792,215 Cost of shares redeemed............................................................. (29,799,700) (22,073,679) ---------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions.................................................... 8,557,089 172,718,536 ---------------- ---------------- Total increase (decrease) in net assets............................................. (12,214,178) 194,833,396 NET ASSETS: Beginning of period................................................................. 202,862,634 8,029,238 ---------------- ---------------- End of period....................................................................... $ 190,648,456 $ 202,862,634 ================ ================ Accumulated net investment income (loss) at end of period................................................................. $ (47,536) ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period............................................. 7,050,002 350,002 Shares sold......................................................................... 1,250,000 7,450,000 Shares redeemed..................................................................... (1,100,000) (750,000) ---------------- ---------------- Shares outstanding, end of period................................................... 7,200,002 7,050,002 ================ ================ </TABLE> Page 80 See Notes to Financial Statements <PAGE> <TABLE> <CAPTION> FIRST TRUST FIRST TRUST NASDAQ NASDAQ FIRST TRUST SMARTPHONE GLOBAL AUTO CLOUD COMPUTING INDEX FUND INDEX FUND ETF (FONE) (CARZ) (SKYY) ---------------------------------------- --------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended 9/30/2018 9/30/2017 9/30/2018 9/30/2017 9/30/2018 9/30/2017 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ <S> <C> <C> <C> <C> <C> $ 215,764 $ 134,367 $ 492,875 $ 442,314 $ 4,152,426 $ 2,647,892 3,299,218 230,978 212,654 (321,052) 197,763,353 64,945,736 (3,474,504) 2,308,284 (2,274,354) 4,030,851 242,652,662 92,334,305 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 40,478 2,673,629 (1,568,825) 4,152,113 444,568,441 159,927,933 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- (316,837) (458,452) (4,648,945) ---------------- ---------------- ---------------- (150,566) (471,232) (2,930,650) ---------------- ---------------- ---------------- 10,472,764 4,836,616 4,140,193 5,435,250 969,178,677 536,313,716 (10,510,233) -- (2,057,562) (12,709,492) (430,888,455) (192,023,068) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- (37,469) 4,836,616 2,082,631 (7,274,242) 538,290,222 344,290,648 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- (313,828) 7,359,679 55,354 (3,593,361) 978,209,718 501,287,931 17,683,471 10,323,792 18,112,083 21,705,444 1,088,929,790 587,641,859 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- $ 17,369,643 $ 17,683,471 $ 18,167,437 $ 18,112,083 $ 2,067,139,508 $ 1,088,929,790 ================ ================ ================ ================ ================ ================ $ 77 $ 42,383 $ -- ================ ================ ================ 350,002 250,002 450,002 650,002 26,000,002 17,200,002 200,000 100,000 100,000 150,000 18,850,000 14,100,000 (200,000) -- (50,000) (350,000) (8,400,000) (5,300,000) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 350,002 350,002 500,002 450,002 36,450,002 26,000,002 ================ ================ ================ ================ ================ ================ </TABLE> See Notes to Financial Statements Page 81 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) <TABLE> <CAPTION> FIRST TRUST INTERNATIONAL IPO ETF (FPXI) --------------------------------------- Year Ended Year Ended 9/30/2018 9/30/2017 ------------------ ------------------ OPERATIONS: <S> <C> <C> Net investment income (loss)........................................................ $ 351,989 $ 97,788 Net realized gain (loss)............................................................ (888,129) (6,246) Net change in unrealized appreciation (depreciation)................................ 971,566 1,309,471 ---------------- ---------------- Net increase (decrease) in net assets resulting from operations.................................................................. 435,426 1,401,013 ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Investment operations............................................................... (400,571) ---------------- Net investment income............................................................... (69,131) ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold........................................................... 5,608,443 19,674,902 Cost of shares redeemed............................................................. (1,751,068) (1,324,851) ---------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions.................................................... 3,857,375 18,350,051 ---------------- ---------------- Total increase (decrease) in net assets............................................. 3,892,230 19,681,933 NET ASSETS: Beginning of period................................................................. 22,429,470 2,747,537 ---------------- ---------------- End of period....................................................................... $ 26,321,700 $ 22,429,470 ================ ================ Accumulated net investment income (loss) at end of period................................................................. $ 34,896 ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period............................................. 650,002 100,002 Shares sold......................................................................... 150,000 600,000 Shares redeemed..................................................................... (50,000) (50,000) ---------------- ---------------- Shares outstanding, end of period................................................... 750,002 650,002 ================ ================ </TABLE> Page 82 See Notes to Financial Statements <PAGE> <TABLE> <CAPTION> FIRST TRUST NASDAQ CYBERSECURITY ETF (CIBR) ---------------------------------------- Year Ended Year Ended 9/30/2018 9/30/2017 ------------------ ------------------ <S> <C> $ 233,083 $ 267,773 39,357,016 1,240,231 94,156,868 16,093,789 ---------------- ---------------- 133,746,967 17,601,793 ---------------- ---------------- (387,720) ---------------- (362,720) ---------------- 587,931,146 213,854,386 (187,191,788) (20,333,389) ---------------- ---------------- 400,739,358 193,520,997 ---------------- ---------------- 534,098,605 210,760,070 313,574,881 102,814,811 ---------------- ---------------- $ 847,673,486 $ 313,574,881 ================ ================ $ (51,025) ================ 14,350,002 5,200,002 22,200,000 10,150,000 (6,800,000) (1,000,000) ---------------- ---------------- 29,750,002 14,350,002 ================ ================ </TABLE> See Notes to Financial Statements Page 83 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 13.61 $ 11.82 $ 11.92 $ 13.50 $ 12.94 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.59 0.42 0.55 0.55 0.58 Net realized and unrealized gain (loss) (0.49) 1.79 (0.10) (1.59) 0.57 ----------- ----------- ----------- ----------- ----------- Total from investment operations 0.10 2.21 0.45 (1.04) 1.15 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.59) (0.42) (0.55) (0.54) (0.59) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 13.12 $ 13.61 $ 11.82 $ 11.92 $ 13.50 =========== =========== =========== =========== =========== TOTAL RETURN (a) 0.74% 18.93% 3.88% (7.90)% 8.68% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 454,824 $ 529,527 $ 165,490 $ 165,751 $ 167,480 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.57% 0.60% 0.60% 0.60% 0.64% Ratio of net expenses to average net assets 0.57% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 4.25% 3.96% 4.63% 4.45% 4.90% Portfolio turnover rate (b) 35% 21% 34% 33% 32% </TABLE> FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 44.96 $ 46.18 $ 41.00 $ 41.09 $ 39.87 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 1.48 0.89 0.90 1.15 1.05 Net realized and unrealized gain (loss) 0.31 (0.65) 5.20 0.11 1.27 ----------- ----------- ----------- ----------- ----------- Total from investment operations 1.79 0.24 6.10 1.26 2.32 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (1.68) (1.46) (0.92) (1.35) (1.10) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 45.07 $ 44.96 $ 46.18 $ 41.00 $ 41.09 =========== =========== =========== =========== =========== TOTAL RETURN (a) 3.99% 0.67% 14.95% 2.97% 5.86% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 45,074 $ 51,700 $ 71,576 $ 98,394 $ 108,887 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.85% 0.70% 0.72% 0.71% 0.71% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 3.48% 2.40% 2.53% 2.76% 2.45% Portfolio turnover rate (b) 9% 6% 6% 10% 12% </TABLE> (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. Page 84 See Notes to Financial Statements <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 25.73 $ 23.49 $ 21.62 $ 26.64 $ 25.62 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 1.15 1.03 1.07 1.21 1.21 Net realized and unrealized gain (loss) (0.58) 2.23 1.82 (4.97) 1.02 ----------- ----------- ----------- ----------- ----------- Total from investment operations 0.57 3.26 2.89 (3.76) 2.23 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (1.14) (1.02) (1.02) (1.26) (1.21) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 25.16 $ 25.73 $ 23.49 $ 21.62 $ 26.64 =========== =========== =========== =========== =========== TOTAL RETURN (a) 2.26% 14.14% 13.68% (14.51)% 8.56% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 484,280 $ 470,887 $ 344,068 $ 407,445 $ 562,192 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.58% 0.58% 0.58% 0.60% 0.60% Ratio of net expenses to average net assets 0.58% 0.58% 0.58% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 4.48% 4.43% 4.63% 4.71% 4.56% Portfolio turnover rate (b) 31% 35% 43% 34% 33% </TABLE> FIRST TRUST GLOBAL WIND ENERGY ETF (FAN) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 13.13 $ 13.30 $ 10.38 $ 11.57 $ 10.43 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.28 0.41 0.20 0.31 0.14 Net realized and unrealized gain (loss) (0.66) 0.32 2.93 (1.15) 1.14 ----------- ----------- ----------- ----------- ----------- Total from investment operations (0.38) 0.73 3.13 (0.84) 1.28 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.25) (0.90) (0.21) (0.35) (0.14) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 12.50 $ 13.13 $ 13.30 $ 10.38 $ 11.57 =========== =========== =========== =========== =========== TOTAL RETURN (a) (2.92)% 6.21% 30.42% (7.37)% 12.17% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 79,362 $ 100,467 $ 87,096 $ 39,959 $ 86,745 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.68% 0.71% 0.74% 0.75% 0.70% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 2.21% 2.88% 1.80% 2.75% 1.23% Portfolio turnover rate (b) 22% 78% 26% 25% 24% </TABLE> (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. See Notes to Financial Statements Page 85 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST GLOBAL ENGINEERING AND CONSTRUCTION ETF (FLM) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 56.89 $ 48.63 $ 44.17 $ 48.12 $ 47.92 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.79 0.62 0.96 0.60 0.62 Net realized and unrealized gain (loss) 0.16 8.27 4.46 (4.02) 0.42 ----------- ----------- ----------- ----------- ----------- Total from investment operations 0.95 8.89 5.42 (3.42) 1.04 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (1.06) (0.63) (0.96) (0.53) (0.84) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 56.78 $ 56.89 $ 48.63 $ 44.17 $ 48.12 =========== =========== =========== =========== =========== TOTAL RETURN (a) 1.67% 18.39% 12.40% (7.19)% 2.06% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 14,194 $ 17,066 $ 14,588 $ 15,460 $ 16,841 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.88% 0.92% 1.03% 0.99% 0.87% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 1.45% 1.20% 2.01% 1.21% 1.30% Portfolio turnover rate (b) 16% 20% 28% 46% 41% </TABLE> FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 49.00 $ 39.19 $ 31.52 $ 35.38 $ 33.83 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.52 0.57 0.42 0.38 0.51 Net realized and unrealized gain (loss) (1.32) 9.82 7.65 (3.88) 1.61 ----------- ----------- ----------- ----------- ----------- Total from investment operations (0.80) 10.39 8.07 (3.50) 2.12 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.58) (0.58) (0.40) (0.36) (0.57) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 47.62 $ 49.00 $ 39.19 $ 31.52 $ 35.38 =========== =========== =========== =========== =========== TOTAL RETURN (a) (1.66)% 26.73% 25.77% (9.97)% 6.19% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 33,333 $ 26,951 $ 13,715 $ 11,034 $ 14,152 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.74% 0.84% 1.07% 0.99% 0.98% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 1.10% 1.44% 1.27% 1.02% 1.45% Portfolio turnover rate (b) 60% 32% 37% 18% 35% </TABLE> (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. Page 86 See Notes to Financial Statements <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST INDXX GLOBAL NATURAL RESOURCES INCOME ETF (FTRI) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 11.88 $ 10.66 $ 10.99 $ 21.19 $ 22.16 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.48 0.41 0.33 0.23 0.41 Net realized and unrealized gain (loss) 0.83 1.22 (0.32) (10.23) (0.92) ----------- ----------- ----------- ----------- ----------- Total from investment operations 1.31 1.63 0.01 (10.00) (0.51) ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.46) (0.41) (0.34) (0.20) (0.41) Return of capital -- -- -- -- (0.05) ----------- ----------- ----------- ----------- ----------- Total distributions (0.46) (0.41) (0.34) (0.20) (0.46) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 12.73 $ 11.88 $ 10.66 $ 10.99 $ 21.19 =========== =========== =========== =========== =========== TOTAL RETURN (a) 11.12% 15.47% 0.20% (47.50)% (2.38)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 8,908 $ 8,913 $ 10,663 $ 12,643 $ 26,486 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.71% (b) Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.71% (b) Ratio of net investment income (loss) to average net assets 3.74% 3.39% 3.00% 1.27% 1.74% Portfolio turnover rate (c) 50% 61% 179% (d) 40% 28% </TABLE> FIRST TRUST INDXX GLOBAL AGRICULTURE ETF (FTAG) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 (f) 2014 (f) ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 26.96 $ 21.55 $ 26.90 $ 56.20 $ 64.35 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.44 0.39 0.20 0.60 0.45 Net realized and unrealized gain (loss) (0.83) 5.41 (5.46) (28.95) (7.15) ----------- ----------- ----------- ----------- ----------- Total from investment operations (0.39) 5.80 (5.26) (28.35) (6.70) ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.36) (0.39) (0.09) (0.95) (1.45) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 26.21 $ 26.96 $ 21.55 $ 26.90 $ 56.20 =========== =========== =========== =========== =========== TOTAL RETURN (a) (1.46)% 27.09% (18.92)% (51.20)% (10.64)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 4,979 $ 7,816 $ 4,093 $ 5,380 $ 10,677 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.70% 0.70% 0.72% (e) 0.70% 0.72% (b) Ratio of net expenses to average net assets 0.70% 0.70% 0.72% (e) 0.70% 0.72% (b) Ratio of net investment income (loss) to average net assets 1.56% 1.80% 1.74% 1.17% 0.46% Portfolio turnover rate (c) 30% 38% 137% (d) 40% 43% </TABLE> (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. (b) Includes excise tax. If this excise tax expense was not included, the expense ratio would have been 0.70%. (c) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (d) The variation in the portfolio turnover rate is due to the change in the Fund's underlying index effective on the close of business December 18, 2015, which resulted in a complete rebalance of the Fund's portfolio. (e) Includes foreign capital gains tax. If this tax expense was not included, the expense ratio would have been 0.70%. (f) All per share amounts and net asset values have been adjusted to reflect the impact of the 1-for-5 reverse share split on May 2, 2016. The net asset values reported on September 30, 2015 and 2014 prior to the reverse share split restatement were $5.38 and $11.24, respectively. See Notes to Financial Statements Page 87 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST BICK INDEX FUND (BICK) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 28.77 $ 22.94 $ 18.76 $ 25.12 $ 23.65 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.40 0.33 0.28 0.32 0.35 Net realized and unrealized gain (loss) (2.34) 5.85 4.19 (6.34) 1.53 ----------- ----------- ----------- ----------- ----------- Total from investment operations (1.94) 6.18 4.47 (6.02) 1.88 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.35) (0.35) (0.29) (0.34) (0.41) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 26.48 $ 28.77 $ 22.94 $ 18.76 $ 25.12 =========== =========== =========== =========== =========== TOTAL RETURN (a) (6.82)% 27.14% 23.99% (24.15)% 7.92% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 190,648 $ 202,863 $ 8,029 $ 7,503 $ 17,581 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.64% 0.64% 0.64% 0.64% 0.64% Ratio of net expenses to average net assets 0.64% 0.64% 0.64% 0.64% 0.64% Ratio of net investment income (loss) to average net assets 1.33% 2.15% 1.37% 1.17% 1.35% Portfolio turnover rate (b) 65% 86% 59% 70% 126% </TABLE> FIRST TRUST NASDAQ SMARTPHONE INDEX FUND (FONE) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 50.52 $ 41.29 $ 34.93 $ 36.86 $ 32.10 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.72 0.44 0.47 0.36 0.43 Net realized and unrealized gain (loss) (0.60) 9.29 6.34 (1.95) 4.75 ----------- ----------- ----------- ----------- ----------- Total from investment operations 0.12 9.73 6.81 (1.59) 5.18 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (1.01) (0.50) (0.45) (0.34) (0.42) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 49.63 $ 50.52 $ 41.29 $ 34.93 $ 36.86 =========== =========== =========== =========== =========== TOTAL RETURN (a) 0.20% 23.68% 19.60% (4.35)% 16.16% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 17,370 $ 17,683 $ 10,324 $ 10,479 $ 11,059 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 1.34% 1.04% 1.14% 0.93% 1.22% Portfolio turnover rate (b) 80% 18% 28% 28% 32% </TABLE> (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. Page 88 See Notes to Financial Statements <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 40.25 $ 33.39 $ 33.46 $ 37.93 $ 38.75 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.98 0.87 0.80 0.64 0.51 Net realized and unrealized gain (loss) (3.98) 6.87 (0.09) (4.50) (0.84) ----------- ----------- ----------- ----------- ----------- Total from investment operations (3.00) 7.74 0.71 (3.86) (0.33) ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.92) (0.88) (0.78) (0.61) (0.49) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 36.33 $ 40.25 $ 33.39 $ 33.46 $ 37.93 =========== =========== =========== =========== =========== TOTAL RETURN (a) (7.57)% 23.46% 2.24% (10.38)% (0.92)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 18,167 $ 18,112 $ 21,705 $ 31,791 $ 64,481 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 2.44% 2.20% 2.16% 1.34% 1.35% Portfolio turnover rate (b) 16% 17% 17% 18% 20% </TABLE> FIRST TRUST CLOUD COMPUTING ETF (SKYY) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, -------------------------------------------------------------------------------- 2018 2017 2016 2015 2014 ------------- ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> <C> Net asset value, beginning of period $ 41.88 $ 34.17 $ 28.08 $ 27.34 $ 24.60 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.14 0.13 0.15 0.09 0.02 Net realized and unrealized gain (loss) 14.84 7.72 6.09 0.74 2.74 ----------- ----------- ----------- ----------- ----------- Total from investment operations 14.98 7.85 6.24 0.83 2.76 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.15) (0.14) (0.15) (0.09) (0.02) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 56.71 $ 41.88 $ 34.17 $ 28.08 $ 27.34 =========== =========== =========== =========== =========== TOTAL RETURN (a) 35.80% 23.00% 22.30% 3.04% 11.20% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 2,067,140 $ 1,088,930 $ 587,642 $ 470,291 $ 341,751 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.28% 0.34% 0.49% 0.31% 0.10% Portfolio turnover rate (b) 7% 14% 23% 25% 12% </TABLE> (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. See Notes to Financial Statements Page 89 <PAGE> FIRST TRUST EXCHANGE-TRADED FUND II FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST INTERNATIONAL IPO ETF (FPXI) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, PERIOD ----------------------------------------------- ENDED 2018 2017 2016 9/30/2015 (a) ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Net asset value, beginning of period $ 34.51 $ 27.47 $ 25.24 $ 30.00 ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.49 0.22 0.51 0.37 Net realized and unrealized gain (loss) 0.66 7.07 2.14 (4.76) ----------- ----------- ----------- ----------- Total from investment operations 1.15 7.29 2.65 (4.39) ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.56) (0.25) (0.42) (0.37) ----------- ----------- ----------- ----------- Net asset value, end of period $ 35.10 $ 34.51 $ 27.47 $ 25.24 =========== =========== =========== =========== TOTAL RETURN (b) 3.35% 26.71% 10.62% (14.74)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 26,322 $ 22,429 $ 2,748 $ 1,262 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.70% 0.70% 0.71% (c) 0.70% (d) Ratio of net expenses to average net assets 0.70% 0.70% 0.71% (c) 0.70% (d) Ratio of net investment income (loss) to average net assets 1.42% 1.62% 2.25% 1.01% (d) Portfolio turnover rate (e) 83% 58% 75% 98% </TABLE> FIRST TRUST NASDAQ CYBERSECURITY ETF (CIBR) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, PERIOD ----------------------------------------------- ENDED 2018 2017 2016 9/30/2015 (a) ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Net asset value, beginning of period $ 21.85 $ 19.77 $ 17.15 $ 20.00 ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.02 0.03 0.23 (0.01) Net realized and unrealized gain (loss) 6.64 2.09 2.62 (2.84) ----------- ----------- ----------- ----------- Total from investment operations 6.66 2.12 2.85 (2.85) ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.02) (0.04) (0.23) -- ----------- ----------- ----------- ----------- Net asset value, end of period $ 28.49 $ 21.85 $ 19.77 $ 17.15 =========== =========== =========== =========== TOTAL RETURN (b) 30.49% 10.73% 16.83% (14.25)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 847,673 $ 313,575 $ 102,815 $ 79,753 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.60% 0.60% 0.60% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 0.04% 0.13% 1.37% (0.30)% (d) Portfolio turnover rate (e) 56% 67% 49% 7% </TABLE> (a) Inception dates for FPXI and CIBR are November 4, 2014 and July 6, 2015, respectively, which are consistent with the respective Fund's commencement of investment operations and are the dates the initial creation units were established. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. (c) Includes excise tax. If this excise tax expense was not included, the expense ratio would have been 0.70%. (d) Annualized. (e) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. Page 90 See Notes to Financial Statements <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 1. ORGANIZATION First Trust Exchange-Traded Fund II (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on July 6, 2006, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently consists of fourteen funds that are offering shares as follows, including the exchange on which they are listed and traded: First Trust STOXX(R) European Select Dividend Index Fund - (NYSE Arca, Inc. ("NYSE Arca") ticker "FDD") First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund - (NYSE Arca ticker "FFR") First Trust Dow Jones Global Select Dividend Index Fund - (NYSE Arca ticker "FGD") First Trust Global Wind Energy ETF - (NYSE Arca ticker "FAN") First Trust Global Engineering and Construction ETF - (NYSE Arca ticker "FLM") First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund - (The Nasdaq Stock Market LLC ("Nasdaq") ticker "GRID") First Trust Indxx Global Natural Resources Income ETF - (Nasdaq ticker "FTRI") First Trust Indxx Global Agriculture ETF - (Nasdaq ticker "FTAG") First Trust BICK Index Fund - (Nasdaq ticker "BICK") First Trust Nasdaq Smartphone Index Fund - (Nasdaq ticker "FONE") First Trust NASDAQ Global Auto Index Fund - (Nasdaq ticker "CARZ") First Trust Cloud Computing ETF - (Nasdaq ticker "SKYY") First Trust International IPO ETF - (Nasdaq ticker "FPXI") First Trust Nasdaq Cybersecurity ETF - (Nasdaq ticker "CIBR") Each fund represents a separate series of shares of beneficial interest in the Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value ("NAV"), only in large specified blocks consisting of 50,000 shares called a "Creation Unit." Each Fund's Creation Units are generally issued and redeemed in-kind for securities in which a Fund invests, and in certain circumstances, for cash, and only to and from broker-dealers and large institutional investors that have entered into participation agreements. Except when aggregated in Creation Units, each Fund's shares are not redeemable securities. The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of the following indices: <TABLE> <CAPTION> FUND INDEX <S> <C> First Trust STOXX(R) European Select Dividend Index Fund STOXX(R) Europe Select Dividend 30 Index First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund FTSE EPRA/NAREIT Developed Index First Trust Dow Jones Global Select Dividend Index Fund Dow Jones Global Select Dividend Index(SM) First Trust Global Wind Energy ETF ISE Clean Edge Global Wind Energy(TM) Index First Trust Global Engineering and Construction ETF ISE Global Engineering and Construction(TM) Index First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure NASDAQ OMX(R) Clean Edge(R) Smart Grid Index Fund Infrastructure Index(SM) First Trust Indxx Global Natural Resources Income ETF Indxx Global Natural Resources Income Index First Trust Indxx Global Agriculture ETF Indxx Global Agriculture Index First Trust BICK Index Fund ISE BICK(TM) Index First Trust Nasdaq Smartphone Index Fund Nasdaq CTA Smartphone Index(SM) First Trust NASDAQ Global Auto Index Fund NASDAQ OMX Global Auto Index(SM) First Trust Cloud Computing ETF ISE Cloud Computing(TM) Index First Trust International IPO ETF IPOX International Index First Trust Nasdaq Cybersecurity ETF Nasdaq CTA Cybersecurity Index(SM) </TABLE> 2. SIGNIFICANT ACCOUNTING POLICIES The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946, "Financial Services-Investment Companies." The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Page 91 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 A. PORTFOLIO VALUATION Each Fund's NAV is determined daily as of the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. Each Fund's NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding. Each Fund's investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds' investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"), in accordance with valuation procedures adopted by the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act. Investments valued by the Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund's investments are valued as follows: Common stocks and other equity securities listed on any national or foreign exchange (excluding Nasdaq and the London Stock Exchange Alternative Investment Market ("AIM")) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities. Shares of open-end funds are valued at fair value which is based on NAV per share. Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Overnight repurchase agreements are valued at amortized cost when it represents the best estimate of fair value. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Trust's Board of Trustees or its delegate, the Advisor's Pricing Committee, at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund's NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security's fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following: 1) the type of security; 2) the size of the holding; 3) the initial cost of the security; 4) transactions in comparable securities; 5) price quotes from dealers and/or third-party pricing services; 6) relationships among various securities; 7) information obtained by contacting the issuer, analysts, or the appropriate stock exchange; 8) an analysis of the issuer's financial statements; and 9) the existence of merger proposals or tender offers that might affect the value of the security. If the securities in question are foreign securities, the following additional information may be considered: 1) the value of similar foreign securities traded on other foreign markets; 2) ADR trading of similar securities; 3) closed-end fund trading of similar securities; 4) foreign currency exchange activity; 5) the trading prices of financial products that are tied to baskets of foreign securities; 6) factors relating to the event that precipitated the pricing problem; 7) whether the event is likely to recur; and 8) whether the effects of the event are isolated or whether they affect entire markets, countries or regions. In addition, differences between the prices used to calculate a Fund's NAV and the prices used by such Fund's corresponding index could result in a difference between a Fund's performance and the performance of its underlying index. Page 92 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 Because foreign markets may be open on different days than the days during which investors may transact in the shares of a Fund, the value of the Fund's securities may change on the days when investors are not able to transact in the shares of the Fund. The value of securities denominated in foreign currencies is converted into U.S. dollars using exchange rates determined daily as of the close of regular trading on the NYSE. Any use of a different rate from the rates used by a relevant index may adversely affect the Fund's ability to track the index. The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the investment. The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund's investments as of September 30, 2018, is included with each Fund's Portfolio of Investments. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis. Withholding taxes and tax reclaims on foreign dividends have been provided for in accordance with each Fund's understanding of the applicable country's tax rules and rates. Distributions received from a Fund's investments in real estate investment trusts ("REITs") may be comprised of return of capital, capital gains and income. The actual character of the amounts received during the year is not known until after the REITs' fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude. C. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES Offsetting Assets and Liabilities require entities to disclose both gross and net information about instruments and transactions eligible for offset on the Statements of Assets and Liabilities, and disclose instruments and transactions subject to master netting or similar agreements. These disclosure requirements are intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a fund's financial position. The transactions subject to offsetting disclosures are derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. This disclosure, if applicable, is included within each Fund's Portfolio of Investments under the heading "Offsetting Assets and Liabilities." For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting arrangements ("MNAs") or similar agreements on the Statements of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency), for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral. D. FOREIGN CURRENCY The books and records of the Funds are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and expense are translated on the respective dates of such transactions. Unrealized gains and losses on assets and liabilities, other than investments in securities, which result from changes in foreign currency exchange rates have been included in "Net change in unrealized appreciation (depreciation) on foreign currency translation" on the Statements of Operations. Unrealized gains and losses on investments in securities which result from changes in foreign exchange rates are included with fluctuations arising from changes in market price and are shown in "Net change in unrealized appreciation (depreciation) on investments" Page 93 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 on the Statements of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received and are included in "Net realized gain (loss) on foreign currency transactions" on the Statements of Operations. The portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase settlement date and subsequent sale trade date is included in "Net realized gain (loss) on investments" on the Statements of Operations. E. SECURITIES LENDING The Funds may lend securities representing up to 33 1/3% of the value of their total assets to broker-dealers, banks and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan, collateral equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the loaned securities. The collateral amount is valued at the beginning of each business day and is compared to the market value of the loaned securities from the prior business day to determine if additional collateral is required. If additional collateral is required, a request is sent to the borrower. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund's loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money in the event of (i) a decline in the value of the collateral provided for the loaned securities, (ii) a decline in the value of any investments made with cash collateral or (iii) an increase in the value of the loaned securities if the borrower does not increase the collateral accordingly and the borrower fails to return the securities. These events could also trigger adverse tax consequences for the Funds. Under the Funds' Securities Lending Agency Agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the Funds' securities lending agent and is responsible for executing the lending of the portfolio securities to creditworthy borrowers. The Funds, however, will be responsible for the risks associated with the investment of cash collateral. A Fund may lose money on its investment of cash collateral, which may affect its ability to repay the collateral to the borrower without the use of other Fund assets. Each Fund that engages in securities lending receives compensation (net of any rebate and securities lending agent fees) for lending its securities. Compensation can be in the form of fees received from the securities lending agent or dividends or interest earned from the investment of cash collateral. The dividend and interest earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At September 30, 2018, only FAN, FLM, GRID, FONE and CARZ had securities in the securities lending program. During the fiscal year ended September 30, 2018, only FAN, FLM, GRID, FTRI, FONE, CARZ and SKYY participated in the securities lending program. In the event of a default by a borrower with respect to any loan, BBH will exercise any and all remedies provided under the applicable borrower agreement to make the Funds whole. These remedies include purchasing replacement securities by applying the collateral held from the defaulting broker against the purchase cost of the replacement securities. If, despite such efforts by BBH to exercise these remedies, a Fund sustains losses as a result of a borrower's default, BBH will indemnify the Fund by purchasing replacement securities at its own expense, or paying the Fund an amount equal to the market value of the replacement securities, subject to certain limitations which are set forth in detail in the Securities Lending Agency Agreement between the Trust on behalf of the Funds and BBH. F. REPURCHASE AGREEMENTS Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase the securities at a mutually agreed upon date and price, under the terms of a Master Repurchase Agreement ("MRA"). During the term of a repurchase agreement, the value of the underlying securities held as collateral on behalf of a Fund, including accrued interest, is required to exceed the value of the repurchase agreement, including accrued interest. The underlying securities for all repurchase agreements are held at the Funds' custodian or designated sub-custodians under tri-party repurchase agreements. MRAs govern transactions between a Fund and select counterparties. The MRAs contain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase agreements. Repurchase agreements received for lending securities are collateralized by U.S. Treasury securities. The U.S. Treasury securities are held in a joint custody account at BBH on behalf of the Funds participating in the securities lending program. In the event the counterparty defaults on the repurchase agreement, the U.S. Treasury securities can either be maintained as part of a Fund's portfolio or sold for cash. A Fund could suffer a loss to the extent that the proceeds from the sale of the underlying collateral held by the Fund is less than the repurchase price and the Fund's costs associated with the delay and enforcement of the MRA. While the Funds may invest in repurchase agreements, any repurchase agreements held by the Funds during the fiscal year ended September 30, 2018, were received as collateral for lending securities. G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income of each Fund, if any, are declared and paid quarterly or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by each Fund, if any, are distributed at least annually. Page 94 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 Distributions from income and capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on significantly modified portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future. The tax character of distributions paid by each Fund during the fiscal year ended September 30, 2018 was as follows: <TABLE> <CAPTION> Distributions Distributions Distributions paid from paid from paid from Ordinary Capital Return of Income Gains Capital ---------------- -------------- -------------- <S> <C> <C> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 22,961,086 $ -- $ -- First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 1,810,508 -- -- First Trust Dow Jones Global Select Dividend Index Fund 22,052,312 -- -- First Trust Global Wind Energy ETF 1,611,016 -- -- First Trust Global Engineering and Construction ETF 341,187 -- -- First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 398,796 -- -- First Trust Indxx Global Natural Resources Income ETF 320,671 -- -- First Trust Indxx Global Agriculture ETF 90,971 -- -- First Trust BICK Index Fund 2,678,851 -- -- First Trust Nasdaq Smartphone Index Fund 316,837 -- -- First Trust NASDAQ Global Auto Index Fund 458,452 -- -- First Trust Cloud Computing ETF 4,648,945 -- -- First Trust International IPO ETF 400,571 -- -- First Trust Nasdaq Cybersecurity ETF 387,720 -- -- </TABLE> The tax character of distributions paid by each Fund during the fiscal year ended September 30, 2017 was as follows: <TABLE> <CAPTION> Distributions Distributions Distributions paid from paid from paid from Ordinary Capital Return of Income Gains Capital ---------------- -------------- -------------- <S> <C> <C> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 12,541,609 $ -- $ -- First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 2,038,758 -- -- First Trust Dow Jones Global Select Dividend Index Fund 16,896,832 -- -- First Trust Global Wind Energy ETF 5,861,912 -- -- First Trust Global Engineering and Construction ETF 188,882 -- -- First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 281,786 -- -- First Trust Indxx Global Natural Resources Income ETF 342,401 -- -- First Trust Indxx Global Agriculture ETF 105,711 -- -- First Trust BICK Index Fund 1,503,661 -- -- First Trust Nasdaq Smartphone Index Fund 150,566 -- -- First Trust NASDAQ Global Auto Index Fund 471,232 -- -- First Trust Cloud Computing ETF 2,930,650 -- -- First Trust International IPO ETF 69,131 -- -- First Trust Nasdaq Cybersecurity ETF 362,720 -- -- </TABLE> Page 95 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 As of September 30, 2018, the components of distributable earnings on a tax basis for each Fund were as follows: <TABLE> <CAPTION> Accumulated Net Undistributed Capital and Unrealized Ordinary Other Appreciation Income Gain (Loss) (Depreciation) ---------------- -------------- -------------- <S> <C> <C> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 204,981 $ (12,805,588) $ 1,279,762 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 506,337 (561,318) 2,886,691 First Trust Dow Jones Global Select Dividend Index Fund 1,800,059 (56,418,880) (833,330) First Trust Global Wind Energy ETF 331,505 (58,330,813) (4,706,241) First Trust Global Engineering and Construction ETF 28,083 (7,242,242) 1,398,247 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (7,896) (1,384,015) 625,076 First Trust Indxx Global Natural Resources Income ETF 22,275 (61,284,474) 901,176 First Trust Indxx Global Agriculture ETF 19,755 (19,010,611) 72,208 First Trust BICK Index Fund 815,353 (11,451,439) (8,280,092) First Trust Nasdaq Smartphone Index Fund (4,247) (734,447) 574,218 First Trust NASDAQ Global Auto Index Fund 85,558 (2,583,438) (2,481,139) First Trust Cloud Computing ETF (77) (5,702,175) 411,369,683 First Trust International IPO ETF 65,701 (1,775,031) 2,464,089 First Trust Nasdaq Cybersecurity ETF -- (9,806,210) 104,550,499 </TABLE> H. INCOME AND OTHER TAXES Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund's taxable income exceeds the distributions from such taxable income for the calendar year. Certain countries assess a capital gains tax on securities sold in their local markets. This tax is accrued as the securities in these foreign markets appreciate in value and is paid at the time of sale to the extent a capital gain is realized. Taxes accrued on securities in an unrealized appreciation position are included in "Net change in unrealized appreciation (depreciation)" on the Statements of Operations. The capital gains tax paid on securities sold is included in "Net realized gain (loss) on foreign capital gains tax" on the Statements of Operations. India's Finance Bill, 2018 ("Finance Bill, 2018") was enacted into law on March 29, 2018 and amongst other provisions, it introduces a long-term capital gains tax beginning April 1, 2018. Long-term capital gains on the sale of listed shares in excess of INR 0.1 million will be taxed at the rate of 10% (plus applicable surcharge and cess (which is a type of tax)) subject to satisfaction of certain conditions. Long-term capital gains accruing as of January 31, 2018 will be considered exempt due to a grandfather clause in the provision. In the case of the sale of listed shares held by a Fund for one year or less, the income would be classified as short-term capital gains and would be taxable at 15% (plus applicable surcharge and cess) provided the shares are sold on the stock exchange and subjected to securities transaction tax ("STT"). The Finance Bill, 2018 increases the cess imposed on the sum of tax and surcharge from 3% to 4%. The cess 4% rate is applied to the capital gains tax, resulting in a higher effective rate of capital gains tax. Where the sale of shares is outside the stock exchange and not subject to STT, the long-term capital gains would be taxed at 10% (plus applicable surcharge and cess) and short-term capital gains would be taxed at 30% (plus applicable surcharge and cess). The Finance Bill, 2018, approves the carry forward of long-term capital losses to be offset against long-term capital gains. Short-term losses and long-term losses can be netted against short-term gains and long-term gains, respectively. The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ending 2015, 2016, 2017 and 2018 remain open to federal and state audit. As of September 30, 2018, management has evaluated the application of these standards to the Funds, and has determined that no provision for income tax is required in the Funds' financial statements for uncertain tax positions. Under the Regulated Investment Company Modernization Act of 2010 (the "Act"), net capital losses arising in taxable years beginning after December 22, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for up to eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. At September 30, 2018, the Funds had pre-enactment and post-enactment net capital losses for federal income tax purposes as shown in the following table. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to Fund shareholders. The Funds are subject to certain limitations, under U.S. tax rules, on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. Page 96 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 <TABLE> <CAPTION> Capital Loss Total Available Post Capital through Enactment - Loss 9/30/2019 No Expiration Available ------------ ------------- ------------- <S> <C> <C> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 161,155 $ 12,644,433 $ 12,805,588 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 1,838 559,480 561,318 First Trust Dow Jones Global Select Dividend Index Fund 323,583 56,095,297 56,418,880 First Trust Global Wind Energy ETF 9,549,964 48,780,849 58,330,813 First Trust Global Engineering and Construction ETF 615,538 6,626,704 7,242,242 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund -- 1,384,015 1,384,015 First Trust Indxx Global Natural Resources Income ETF -- 61,284,474 61,284,474 First Trust Indxx Global Agriculture ETF -- 19,010,611 19,010,611 First Trust BICK Index Fund -- 11,451,439 11,451,439 First Trust Nasdaq Smartphone Index Fund -- 734,447 734,447 First Trust NASDAQ Global Auto Index Fund -- 2,583,438 2,583,438 First Trust Cloud Computing ETF -- 5,702,175 5,702,175 First Trust International IPO ETF -- 1,775,031 1,775,031 First Trust Nasdaq Cybersecurity ETF -- 9,806,210 9,806,210 </TABLE> During the taxable year ended September 30, 2018, the following Funds utilized capital loss carryforwards in the following amounts: <TABLE> <CAPTION> Capital Loss Carryforward Utilized --------------------- <S> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 4,489,236 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 34,535 First Trust Dow Jones Global Select Dividend Index Fund 4,013,289 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 1,498,927 First Trust Indxx Global Natural Resources Income ETF 434,001 First Trust Indxx Global Agriculture ETF 148,724 First Trust BICK Index Fund 981,694 First Trust Nasdaq Smartphone Index Fund 205,494 First Trust Cloud Computing ETF 28,719 </TABLE> At the taxable year ended September 30, 2018, the following Funds' capital loss carryforwards expired in the following amounts: <TABLE> <CAPTION> Capital Loss Expired --------------------- <S> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 4,853,444 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 744,825 First Trust Dow Jones Global Select Dividend Index Fund 1,274,694 First Trust Global Wind Energy ETF 8,357,650 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 928,889 First Trust Indxx Global Natural Resources Income ETF 74,393 First Trust Indxx Global Agriculture ETF 344,523 </TABLE> Certain losses realized during the current fiscal year may be deferred and treated as occurring the first day on the following fiscal year for federal income tax purposes. For the fiscal year ended September 30, 2018, the following Funds incurred and elected to defer late year ordinary or capital losses in the following amounts: <TABLE> <CAPTION> Qualified Late Year Losses -------------------------- Ordinary Losses Capital Losses --------------- -------------- <S> <C> <C> First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund $ 7,896 $ -- First Trust Nasdaq Smartphone Index Fund 4,247 -- First Trust Cloud Computing ETF 77 -- </TABLE> In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various Page 97 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 investment securities held by the Funds and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended September 30, 2018, the adjustments for each Fund were as follows: <TABLE> <CAPTION> Accumulated Accumulated Net Realized Net Investment Gain (Loss) on Paid-in Income (Loss) Investments Capital ---------------- -------------- -------------- <S> <C> <C> <C> First Trust STOXX(R) European Select Dividend Index Fund $ (147,461) $ (2,892,224) $ 3,039,685 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 216,285 (378,653) 162,368 First Trust Dow Jones Global Select Dividend Index Fund (169,017) (1,642,240) 1,811,257 First Trust Global Wind Energy ETF 860,700 2,492,225 (3,352,925) First Trust Global Engineering and Construction ETF 25,934 (1,554,827) 1,528,893 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (7,092) (636,982) 644,074 First Trust Indxx Global Natural Resources Income ETF (5,968) 1,625 4,343 First Trust Indxx Global Agriculture ETF (1,530) (328,262) 329,792 First Trust BICK Index Fund 30,698 (1,698,043) 1,667,345 First Trust Nasdaq Smartphone Index Fund 83,095 (3,371,395) 3,288,300 First Trust NASDAQ Global Auto Index Fund 8,752 (234,773) 226,021 First Trust Cloud Computing ETF 496,442 (195,809,467) 195,313,025 First Trust International IPO ETF 79,387 (485,900) 406,513 First Trust Nasdaq Cybersecurity ETF 182,560 (49,017,184) 48,834,624 </TABLE> I. EXPENSES Expenses that are directly related to one of the Funds are charged directly to the respective Fund, except for First Trust Indxx Global Natural Resources Income ETF, First Trust Indxx Global Agriculture ETF, First Trust BICK Index Fund, First Trust Nasdaq Smartphone Index Fund, First Trust NASDAQ Global Auto Index Fund, First Trust Cloud Computing ETF, First Trust International IPO ETF, and First Trust Nasdaq Cybersecurity ETF (the "Unitary Fee Funds"), for which expenses other than excluded expenses (discussed in Note 3) are paid by the Advisor. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. First Trust has entered into licensing agreements with each of the following "Licensors" for the respective Funds: <TABLE> <CAPTION> FUND LICENSOR <S> <C> First Trust STOXX(R) European Select Dividend Index Fund STOXX Limited First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund FTSE International Limited First Trust Dow Jones Global Select Dividend Index Fund Dow Jones & Company, Inc. First Trust Global Wind Energy ETF Nasdaq, Inc. First Trust Global Engineering and Construction ETF Nasdaq, Inc. First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund Nasdaq, Inc. First Trust Indxx Global Natural Resources Income ETF Indxx, LLC First Trust Indxx Global Agriculture ETF Indxx, LLC First Trust BICK Index Fund Nasdaq, Inc. First Trust Nasdaq Smartphone Index Fund Nasdaq, Inc. First Trust NASDAQ Global Auto Index Fund Nasdaq, Inc. First Trust Cloud Computing ETF Nasdaq, Inc. First Trust International IPO ETF IPOX(R) Schuster, LLC First Trust Nasdaq Cybersecurity ETF Nasdaq, Inc. </TABLE> The respective license agreements allow for the use of each Fund's respective index and of certain trademarks and trade names of the respective Licensors. The Funds are sub-licensees to the applicable license agreements. The Funds, except for the Unitary Fee Funds, are required to pay licensing fees, which are shown on the Statements of Operations. The licensing fees for the Unitary Fee Funds are paid by First Trust from the unitary investment advisory fees it receives from each of these Funds. J. NEW ACCOUNTING PRONOUNCEMENT On August 28, 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which amends the fair value measurement disclosure requirements of ASC 820. The amendments of ASU 2018-13 include new, eliminated, and modified disclosure requirements of ASC 820. In addition, the amendments clarify that materiality is an appropriate consideration of entities when evaluating Page 98 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Funds have early adopted ASU 2018-13 for these financial statements, which did not result in a material impact. 3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund's portfolio, managing the Funds' business affairs and providing certain administrative services necessary for the management of the Funds. For the following Unitary Fee Funds, First Trust is paid an annual unitary management fee at the specified rate of such Fund's average daily net assets and is responsible for the expenses of such Fund including the cost of transfer agency, custody, fund administration, legal, audit and other services, and excluding fee payments under the Investment Management Agreement, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, brokerage expense, acquired fund fees and expenses, taxes, interest, and extraordinary expenses. % of Daily Net Assets ------------ First Trust Indxx Global Natural Resources Income ETF 0.70% First Trust Indxx Global Agriculture ETF 0.70% First Trust BICK Index Fund 0.64% First Trust Nasdaq Smartphone Index Fund 0.70% First Trust NASDAQ Global Auto Index Fund 0.70% First Trust Cloud Computing ETF 0.60% First Trust International IPO ETF 0.70% First Trust Nasdaq Cybersecurity ETF 0.60% For the First Trust STOXX(R) European Select Dividend Index Fund, First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund, First Trust Dow Jones Global Select Dividend Index Fund, First Trust Global Wind Energy ETF, First Trust Global Engineering and Construction ETF and First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (such Funds, the "Expense Cap Funds"), First Trust is paid an annual management fee of 0.40% of such Fund's average daily net assets. For the Expense Cap Funds, the Trust and First Trust have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement ("Recovery Agreement") in which First Trust has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of each such Fund (excluding interest expense, brokerage commissions and other trading expenses, acquired fund fees and expenses, taxes and extraordinary expenses) exceed the following amount as a percentage of average daily net assets per year (the "Expense Cap") at least through January 31, 2020. <TABLE> <CAPTION> Expense Cap ------------- <S> <C> First Trust STOXX(R) European Select Dividend Index Fund 0.60% First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 0.60% First Trust Dow Jones Global Select Dividend Index Fund 0.60% First Trust Global Wind Energy ETF 0.60% First Trust Global Engineering and Construction ETF 0.70% First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 0.70% </TABLE> Expenses reimbursed and fees waived by First Trust under the Recovery Agreement are subject to recovery by First Trust for up to three years from the date the fee or expense was incurred, but no reimbursement payment will be made by a Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees waived by First Trust. These amounts would be included in "Expenses previously waived or reimbursed" on the Statements of Operations. Page 99 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 The advisory fee waivers and expense reimbursements for the fiscal year ended September 30, 2018 and the fees waived or expenses borne by First Trust subject to recovery from the applicable Fund for the periods indicated were as follows: <TABLE> <CAPTION> Fees Waived or Expenses Borne by First Trust Subject to Recovery -------------------------------------------- Advisory Expense Year Year Year Fee Reim- Ended Ended Ended Waivers bursements 9/30/2016 9/30/2017 9/30/2018 Total ---------- ---------- ---------- ---------- ---------- -------- <S> <C> <C> <C> <C> <C> <C> First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund $ 117,546 $ -- $ 102,416 $ 60,987 $ 117,546 $280,949 First Trust Global Wind Energy ETF 71,385 -- 74,347 93,898 71,385 239,630 First Trust Global Engineering and Construction ETF 33,419 -- 47,282 33,893 33,419 114,594 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 13,940 -- 42,554 28,627 13,940 85,121 </TABLE> The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM"). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNYM is responsible for custody of each Fund's assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund's securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, or is an index fund. Additionally, the Lead Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairmen rotate every three years. The officers and "Interested" Trustee receive no compensation from the Trust for acting in such capacities. 4. PURCHASES AND SALES OF SECURITIES For the fiscal year ended September 30, 2018, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows: <TABLE> <CAPTION> Purchases Sales ---------------- -------------- <S> <C> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 183,841,647 $ 187,129,746 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 4,137,454 4,271,278 First Trust Dow Jones Global Select Dividend Index Fund 153,684,541 151,894,727 First Trust Global Wind Energy ETF 21,307,822 20,071,625 First Trust Global Engineering and Construction ETF 3,084,815 3,013,892 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 19,854,613 19,640,940 First Trust Indxx Global Natural Resources Income ETF 4,455,341 4,476,354 First Trust Indxx Global Agriculture ETF 1,931,022 2,237,220 First Trust BICK Index Fund 156,495,546 145,449,594 First Trust Nasdaq Smartphone Index Fund 13,084,093 12,944,498 First Trust NASDAQ Global Auto Index Fund 3,725,355 3,094,751 First Trust Cloud Computing ETF 110,368,035 109,637,955 First Trust International IPO ETF 20,921,418 20,393,570 First Trust Nasdaq Cybersecurity ETF 314,615,317 299,285,216 </TABLE> Page 100 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 For the fiscal year ended September 30, 2018, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows: <TABLE> <CAPTION> Purchases Sales ---------------- -------------- <S> <C> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 33,249,922 $ 87,966,575 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund -- 6,580,364 First Trust Dow Jones Global Select Dividend Index Fund 56,971,346 32,883,185 First Trust Global Wind Energy ETF 16,249,351 32,299,880 First Trust Global Engineering and Construction ETF 2,829,987 5,292,746 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 12,434,926 5,088,019 First Trust Indxx Global Natural Resources Income ETF -- 549,471 First Trust Indxx Global Agriculture ETF 1,210,700 3,522,299 First Trust BICK Index Fund 14,681,951 17,148,500 First Trust Nasdaq Smartphone Index Fund 8,745,347 9,287,963 First Trust NASDAQ Global Auto Index Fund 3,389,152 1,896,592 First Trust Cloud Computing ETF 967,179,337 430,696,709 First Trust International IPO ETF 4,692,183 1,409,752 First Trust Nasdaq Cybersecurity ETF 575,142,821 187,411,191 </TABLE> 5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares in transactions with broker-dealers or large institutional investors that have entered into a participation agreement (an "Authorized Participant"). In order to purchase Creation Units of a Fund, an Authorized Participant must deposit (i) a designated portfolio of equity securities determined by First Trust (the "Deposit Securities") and generally make or receive a cash payment referred to as the "Cash Component," which is an amount equal to the difference between the NAV of the Fund Shares (per Creation Unit Aggregation) and the market value of the Deposit Securities, and/or (ii) cash in lieu of all or a portion of the Deposit Securities. If the Cash Component is a positive number (i.e., the NAV per Creation Unit Aggregation exceeds the Deposit Amount), the Authorized Participant will deliver the Cash Component. If the Cash Component is a negative number (i.e., the NAV per Creation Unit Aggregation is less than the Deposit Amount), the Authorized Participant will receive the Cash Component. Authorized Participants purchasing Creation Units must pay to BNYM, as transfer agent, a creation fee (the "Creation Transaction Fee") regardless of the number of Creation Units purchased in the transaction. The Creation Transaction Fee may vary and is based on the composition of the securities included in each Fund's portfolio and the countries in which the transactions are settled. The Creation Transaction Fee may increase or decrease as each Fund's portfolio is adjusted to conform to changes in the composition of its corresponding index. The price for each Creation Unit will equal the daily NAV per share times the number of shares in a Creation Unit plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees or stamp taxes. When a Fund permits an Authorized Participant to substitute cash or a different security in lieu of depositing one or more of the requisite Deposit Securities, the Authorized Participant may also be assessed an amount to cover the cost of purchasing the Deposit Securities and/or disposing of the substituted securities, including operational processing and brokerage costs, transfer fees, stamp taxes, and part or all of the spread between the expected bid and offer side of the market related to such Deposit Securities and/or substitute securities. Authorized Participants redeeming Creation Units must pay to BNYM, as transfer agent, a redemption transaction fee (the "Redemption Transaction Fee"), regardless of the number of Creation Units redeemed in the transaction. The Redemption Transaction Fee may vary and is based on the composition of the securities included in each Fund's portfolio and the countries in which the transactions are settled. The Redemption Transaction Fee may increase or decrease as each Fund's portfolio is adjusted to conform to changes in the composition of its corresponding index. Each Fund reserves the right to effect redemptions in cash. An Authorized Participant may request a cash redemption in lieu of securities; however, each Fund may, in its discretion, reject any such request. Page 101 <PAGE> -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 The standard Creation Transaction Fees and the Redemption Transaction Fees are as follows: <TABLE> <CAPTION> Creation Redemption Transaction Transaction Fees Fees ---------------- -------------- <S> <C> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 500 $ 500 First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 4,500 4,500 First Trust Dow Jones Global Select Dividend Index Fund 2,000 2,000 First Trust Global Wind Energy ETF 1,000 1,000 First Trust Global Engineering and Construction ETF 1,500 1,500 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 500 500 First Trust Indxx Global Natural Resources Income ETF 2,500 2,500 First Trust Indxx Global Agriculture ETF 2,000 2,000 First Trust BICK Index Fund 2,500 2,500 First Trust Nasdaq Smartphone Index Fund 1,000 1,000 First Trust NASDAQ Global Auto Index Fund 1,000 1,000 First Trust Cloud Computing ETF 500 500 First Trust International IPO ETF 1,000 1,000 First Trust Nasdaq Cybersecurity ETF 500 500 </TABLE> 6. DISTRIBUTION PLAN The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services. No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before January 31, 2020. 7. INDEMNIFICATION The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 8. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined there were the following subsequent events: On October 5, 2018 and November 6, 2018, First Trust IPOX(R) Europe Equity Opportunities ETF and First Trust Dow Jones International Internet ETF, additional series of the Trust, began trading under the symbols "FPXE" and "FDNI", respectively, on Nasdaq. Page 102 <PAGE> -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED FUND II: OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS We have audited the accompanying statements of assets and liabilities of First Trust STOXX(R) European Select Dividend Index Fund, First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund, First Trust Dow Jones Global Select Dividend Index Fund, First Trust Global Wind Energy ETF, First Trust Global Engineering and Construction ETF, First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund, First Trust Indxx Global Natural Resources Income ETF, First Trust Indxx Global Agriculture ETF, First Trust BICK Index Fund, First Trust Nasdaq Smartphone Index Fund, First Trust NASDAQ Global Auto Index Fund, First Trust Cloud Computing ETF, First Trust International IPO ETF and First Trust Nasdaq Cybersecurity ETF (the "Funds"), each a series of the First Trust Exchange-Traded Fund II (the "Trust"), including the portfolios of investments, as of September 30, 2018, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended for the Funds, except First Trust International IPO ETF and First Trust Nasdaq Cybersecurity ETF; the related statement of operations for the year ended September 30, 2018, and the statements of changes in net assets for each of the two years in the period ended September 30, 2018, and financial highlights for each of the three years in the period ended September 30, 2018, and for the period November 4, 2014 (commencement of operations) through September 30, 2015, for First Trust International IPO ETF; the related statement of operations for the year ended September 30, 2018, and the statements of changes in net assets for each of the two years in the period ended September 30, 2018, and financial highlights for each of the three years in the period ended September 30, 2018, and for the period July 6, 2015 (commencement of operations) through September 30, 2015, for First Trust Nasdaq Cybersecurity ETF, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position the Funds, except First Trust International IPO ETF and First Trust Nasdaq Cybersecurity ETF as of September 30, 2018, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of First Trust International IPO ETF and First Trust Nasdaq Cybersecurity ETF as of September 30, 2018; the results of operations for the year then ended, the changes in net assets for each of the two years in the period ended September 30, 2018, and financial highlights for each of the three years in the period ended September 30, 2018, and for the period November 4, 2014 (commencement of operations) through September 30, 2015, for First Trust International IPO ETF; and the results of operations for the year ended September 30, 2018, the changes in net assets for each of the two years in the period ended September 30, 2018, and financial highlights for each of the three years in the period ended September 30, 2018, and for the period July 6, 2015 (commencement of operations) through September 30, 2015, for First Trust Nasdaq Cybersecurity ETF, in conformity with accounting principles generally accepted in the United States of America. BASIS FOR OPINION These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on the Funds' financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2018, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Chicago, Illinois November 21, 2018 We have served as the auditor of one or more First Trust investment companies since 2001. Page 103 <PAGE> -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on each Fund's website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission's ("SEC") website at www.sec.gov. PORTFOLIO HOLDINGS The Trust files its complete schedule of each Fund's portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust's Form N-Qs are available (1) by calling (800) 988-5891; (2) on each Fund's website at www.ftportfolios.com; (3) on the SEC's website at www.sec.gov; and (4) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling (800) SEC-0330. FEDERAL TAX INFORMATION For the taxable year ended September 30, 2018, the following percentages of income dividend paid by the Funds qualified for the dividends received deduction available to corporations: <TABLE> <CAPTION> Dividends Received Deduction --------------------- <S> <C> First Trust STOXX(R) European Select Dividend Index Fund 0.00% First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 0.00% First Trust Dow Jones Global Select Dividend Index Fund 17.16% First Trust Global Wind Energy ETF 14.01% First Trust Global Engineering and Construction ETF 8.94% First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 25.66% First Trust Indxx Global Natural Resources Income ETF 19.71% First Trust Indxx Global Agriculture ETF 39.03% First Trust BICK Index Fund 0.00% First Trust Nasdaq Smartphone Index Fund 31.01% First Trust NASDAQ Global Auto Index Fund 33.96% First Trust Cloud Computing ETF 100.00% First Trust International IPO ETF 0.00% First Trust Nasdaq Cybersecurity ETF 100.00% </TABLE> For the taxable year ended September 30, 2018, the following percentages of income dividend paid by the Funds is hereby designated as qualified dividend income: <TABLE> <CAPTION> Qualified Dividend Income ------------------------- <S> <C> First Trust STOXX(R) European Select Dividend Index Fund 100.00% First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 11.22% First Trust Dow Jones Global Select Dividend Index Fund 100.00% First Trust Global Wind Energy ETF 100.00% First Trust Global Engineering and Construction ETF 100.00% First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 100.00% First Trust Indxx Global Natural Resources Income ETF 100.00% First Trust Indxx Global Agriculture ETF 100.00% First Trust BICK Index Fund 69.24% First Trust Nasdaq Smartphone Index Fund 71.82% First Trust NASDAQ Global Auto Index Fund 100.00% First Trust Cloud Computing ETF 100.00% First Trust International IPO ETF 94.02% First Trust Nasdaq Cybersecurity ETF 100.00% </TABLE> Page 104 <PAGE> -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) The following Funds meet the requirements of Section 853 of the Internal Revenue Code and elects to pass through to their shareholders credit for foreign taxes paid. For the taxable year ended September 30, 2018, the total amounts of income received by the Funds from sources within foreign countries and possessions of the United States and of taxes paid to such countries are as follows: <TABLE> <CAPTION> Gross Foreign Income Foreign Taxes Paid --------------------------- --------------------------- Amount Per Share Amount Per Share ------------- ------------ ------------- ------------ <S> <C> <C> <C> <C> First Trust STOXX(R) European Select Dividend Index Fund $ 28,587,791 $ 0.82 $ 2,711,261 $ 0.08 First Trust Dow Jones Global Select Dividend Index Fund 23,546,894 1.22 2,253,845 0.12 First Trust Global Wind Energy ETF 1,881,867 0.30 216,369 0.03 First Trust Global Engineering and Construction ETF 326,312 1.31 31,997 0.13 First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 497,562 0.71 54,714 0.08 First Trust Indxx Global Natural Resources Income ETF 310,754 0.44 26,479 0.04 First Trust Indxx Global Agriculture ETF 120,856 0.64 14,641 0.08 First Trust BICK Index Fund 4,725,876 0.66 238,782 0.03 First Trust Nasdaq Smartphone Index Fund 239,634 0.68 28,936 0.08 First Trust NASDAQ Global Auto Index Fund 466,651 0.93 56,745 0.11 First Trust International IPO ETF 575,148 0.77 49,679 0.07 </TABLE> RISK CONSIDERATIONS RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE APPLICABLE TO SOME OR ALL OF THE FUNDS ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE, RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND. CONCENTRATION RISK. To the extent that a Fund is able to invest a large percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the Fund's investments more than if the Fund were more broadly diversified. A Fund that tracks an index will be concentrated to the extent the Fund's corresponding index is concentrated. A concentration makes a Fund more susceptible to any single occurrence and may subject the Fund to greater market risk than a fund that is not concentrated. CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer's ability to make such payments. CYBER SECURITY RISK. The Funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a Fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a Fund's third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the Fund invests, can also subject a Fund to many of the same risks associated with direct cyber security breaches. DERIVATIVES RISK. To the extent a Fund uses derivative instruments such as futures contracts, options contracts and swaps, the Fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a Fund's portfolio managers use derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. EQUITY SECURITIES RISK. To the extent a Fund invests in equity securities, the value of the Fund's shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors' perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market. Page 105 <PAGE> -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) ETF RISK. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF's shares, or decisions by an ETF's authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF's shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads. FIXED INCOME SECURITIES RISK. To the extent a Fund invests in fixed income securities, the Fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a Fund's fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a Fund's fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the Fund. In addition to these risks, high yield securities, or "junk" bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities. FUND OF FUNDS RISK. To the extent a Fund invests in the securities of other investment vehicles, the Fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the Fund's investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the Fund invests. INDEX CONSTITUENT RISK. Certain Funds may be a constituent of one or more indices. As a result, such a Fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a Fund, the size of the Fund and the market volatility of the Fund. Inclusion in an index could significantly increase demand for the Fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a Fund's net asset value could be negatively impacted and the Fund's market price may be significantly below its net asset value during certain periods. INDEX PROVIDER RISK. To the extent that a Fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the Fund's costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the Fund and its shareholders. MANAGEMENT RISK. To the extent that a Fund is actively managed, it is subject to management risk. In managing an actively-managed Fund's investment portfolio, the Fund's portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a Fund will meet its investment objective. MARKET RISK. Securities held by a Fund, as well as shares of a Fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a Fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. NON-U.S. SECURITIES RISK. To the extent a Fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries. PASSIVE INVESTMENT RISK. To the extent a Fund seeks to track an index, the Fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A Fund generally will not attempt to take defensive positions in declining markets. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 106 <PAGE> -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) ADVISORY AGREEMENTS BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT AGREEMENT (NON-UNITARY FEE FUNDS) The Board of Trustees (the "Board") of First Trust Exchange-Traded Fund II (the "Trust"), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the "Agreement") with First Trust Advisors L.P. (the "Advisor") on behalf of the following six series of the Trust (each a "Fund" and collectively, the "Funds"): First Trust STOXX(R) European Select Dividend Index Fund (FDD) First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (FFR) First Trust Dow Jones Global Select Dividend Index Fund (FGD) First Trust Global Engineering and Construction ETF (FLM) First Trust Global Wind Energy ETF (FAN) First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (GRID) The Board approved the continuation of the Agreement for each Fund for a one-year period ending June 30, 2019 at a meeting held on June 11, 2018. The Board determined for each Fund that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its reasonable business judgment. To reach this determination for each Fund, the Board considered its duties under the Investment Company Act of 1940, as amended (the "1940 Act"), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 23, 2018 and June 11, 2018, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees that, among other things, outlined the services provided by the Advisor to each Fund (including the relevant personnel responsible for these services and their experience); the advisory fee rate payable by each Fund as compared to fees charged to a peer group of funds (all of which were exchange-traded funds ("ETFs")) compiled by Management Practice, Inc. ("MPI"), an independent source (the "Peer Group"), and as compared to fees charged to other clients of the Advisor, including other ETFs managed by the Advisor; expenses of each Fund as compared to expense ratios of the funds in the Fund's Peer Group; performance information for each Fund; the nature of expenses incurred in providing services to each Fund and the potential for economies of scale, if any; financial data on the Advisor; any fall-out benefits to the Advisor and its affiliate, First Trust Portfolios L.P. ("FTP"); and information on the Advisor's compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 23, 2018, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April meeting, independent legal counsel on behalf of the Independent Trustees requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and independent legal counsel held prior to the June 11, 2018 meeting, as well as at the meeting held that day. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from each Fund's perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in a Fund knowing that the Advisor manages the Fund and knowing the Fund's advisory fee. In reviewing the Agreement for each Fund, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and each Fund and reviewed all of the services provided by the Advisor to the Funds, as well as the background and experience of the persons responsible for such services. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor's and each Fund's compliance with the 1940 Act, as well as each Fund's compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Funds. Finally, as part of the Board's consideration of the Advisor's services, the Advisor, in its written materials and at the April 23, 2018 meeting, described to the Board the scope of its ongoing investment in additional infrastructure and personnel to maintain and improve the quality of services provided to the Funds and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and each Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed each Fund consistent with the Fund's investment objective, policies and restrictions. The Board considered the advisory fee rate payable by each Fund under the Agreement for the services provided. The Board considered that the Advisor agreed to extend the current expense cap for each Fund through January 31, 2020. For each Fund, the Board noted that expenses borne or fees waived by the Advisor are to be subject to reimbursement by the Fund for up to three years from the Page 107 <PAGE> -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) date the expense was incurred or fee was waived, but no reimbursement payment would be made by the Fund if it would result in the Fund exceeding an expense ratio equal to the expense cap in place at the time the expenses were borne or fees were waived by the Advisor. The Board received and reviewed information showing the advisory or unitary fee rates and expense ratios of the peer funds in the Peer Groups, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because each Fund's Peer Group included peer funds that pay a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio of FAN was below the median total (net) expense ratio of the peer funds in the Fund's Peer Group, the total (net) expense ratio of FGD was equal to the median total (net) expense ratio of the peer funds in the Fund's Peer Group and the total (net) expense ratios of FDD, FFR, FLM and GRID were above the median total (net) expense ratio of the peer funds in each Fund's respective Peer Group. With respect to the Peer Groups, the Board noted its prior discussions with the Advisor and MPI regarding the assembly of the Peer Groups and, at the April 23, 2018 meeting, discussed with the Advisor limitations in creating peer groups for index ETFs, including differences in underlying indexes and index-tracking methodologies that can result in greater management complexities across seemingly comparable ETFs and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Funds and other non-ETF clients that limited their comparability. In considering the advisory fee rates overall, the Board also considered the Advisor's statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor's description of its long-term commitment to each Fund. The Board considered performance information for each Fund. The Board noted the process it has established for monitoring each Fund's performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Funds. The Board determined that this process continues to be effective for reviewing each Fund's performance. The Board received and reviewed information for periods ended December 31, 2017 regarding the performance of each Fund's underlying index, the correlation between each Fund's performance and that of its underlying index, each Fund's tracking difference and each Fund's excess return as compared to its benchmark index. The Board considered the Advisor's representations regarding the impact of foreign security fair valuations and currency exchange rates on the correlation between each Fund's performance and that of its underlying index. Based on the information provided and its ongoing review of performance, the Board concluded that, after factoring in the impact of fair valuations and currency exchange rates, each Fund was correlated to its underlying index and that the tracking difference for each Fund was within a reasonable range. In addition, the Board reviewed data prepared by MPI comparing each Fund's performance to that of its respective Peer Group and to that of one or more broad-based benchmark indexes, but given each Fund's objective of seeking investment results that correspond generally to the performance of its underlying index, the Board placed more emphasis on its review of correlation and tracking difference. On the basis of all the information provided on the fees, expenses and performance of each Fund and the ongoing oversight by the Board, the Board concluded that the advisory fee for each Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to each Fund under the Agreement. The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Funds and noted the Advisor's statement that it believes its expenses will likely increase over the next twelve months as the Advisor continues to make investments in infrastructure and personnel. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to each Fund for the twelve months ended December 31, 2017 and the estimated profitability level for each Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor's profitability level for each Fund was not unreasonable. The Board considered that the Advisor had identified as a fall-out benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Funds, may have had no dealings with the Advisor or FTP, and noted that the Advisor does not utilize soft dollars in connection with its management of the Funds' portfolios. The Board concluded that the character and amount of potential fall-out benefits to the Advisor were not unreasonable. Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of each Fund. No single factor was determinative in the Board's analysis. BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT AGREEMENT (UNITARY FEE FUNDS) The Board of First Trust Exchange-Traded Fund II (the "Trust"), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreements (as applicable to a specific Fund, the "Agreement" and collectively, the "Agreements") with First Trust Advisors L.P. (the "Advisor") on behalf of the following eight series of the Trust (each a "Fund" and collectively, the "Funds"): Page 108 <PAGE> -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) First Trust Nasdaq Smartphone Index Fund (FONE) First Trust BICK Index Fund (BICK) First Trust Indxx Global Natural Resources Income ETF (FTRI) First Trust Indxx Global Agriculture ETF (FTAG) First Trust NASDAQ Global Auto Index Fund (CARZ) First Trust Cloud Computing ETF (SKYY) First Trust International IPO ETF (FPXI) First Trust Nasdaq Cybersecurity ETF (CIBR) The Board approved the continuation of the Agreement for each Fund for a one-year period ending June 30, 2019 at a meeting held on June 11, 2018. The Board determined for each Fund that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its reasonable business judgment. To reach this determination for each Fund, the Board considered its duties under the Investment Company Act of 1940, as amended (the "1940 Act"), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 23, 2018 and June 11, 2018, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees that, among other things, outlined the services provided by the Advisor to each Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate payable by each Fund as compared to fees charged to a peer group of funds (all of which were exchange-traded funds ("ETFs")) compiled by Management Practice, Inc. ("MPI"), an independent source (the "Peer Group"), and as compared to fees charged to other clients of the Advisor, including other ETFs managed by the Advisor; expenses of each Fund as compared to expense ratios of the funds in the Fund's Peer Group; performance information for each Fund; the nature of expenses incurred in providing services to each Fund and the potential for economies of scale, if any; financial data on the Advisor; any fall-out benefits to the Advisor and its affiliate, First Trust Portfolios L.P. ("FTP"); and information on the Advisor's compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 23, 2018, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April meeting, independent legal counsel on behalf of the Independent Trustees requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and independent legal counsel held prior to the June 11, 2018 meeting, as well as at the meeting held that day. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from each Fund's perspective. The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in a Fund knowing that the Advisor manages the Fund and knowing the Fund's unitary fee. In reviewing the Agreement for each Fund, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and each Fund and reviewed all of the services provided by the Advisor to the Funds, as well as the background and experience of the persons responsible for such services. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor's and each Fund's compliance with the 1940 Act, as well as each Fund's compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Funds. Finally, as part of the Board's consideration of the Advisor's services, the Advisor, in its written materials and at the April 23, 2018 meeting, described to the Board the scope of its ongoing investment in additional infrastructure and personnel to maintain and improve the quality of services provided to the Funds and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and each Fund by the Advisor under the Agreements have been and are expected to remain satisfactory and that the Advisor has managed each Fund consistent with the Fund's investment objective, policies and restrictions. The Board considered the unitary fee rate payable by each Fund under the applicable Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for each Fund's expenses, including the cost of transfer agency, custody, fund administration, legal, audit, licensing and other services, but excluding interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The Board received and reviewed information showing the advisory or unitary fee rates and expense ratios of the peer funds in the Peer Groups, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because each Fund's Peer Group included peer funds that pay a unitary fee and because each Fund pays a unitary fee, the Board determined that expense ratios Page 109 <PAGE> -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) were the most relevant comparative data point. Based on the information provided, the Board noted that the unitary fees for BICK and FTAG were equal to the median total (net) expense ratio of the peer funds in each Fund's respective Peer Group and the unitary fees for FONE, FTRI, CARZ, SKYY, FPXI and CIBR were above the median total (net) expense ratio of the peer funds in each Fund's respective Peer Group. With respect to the Peer Groups, the Board noted its prior discussions with the Advisor and MPI regarding the assembly of the Peer Groups and, at the April 23, 2018 meeting, discussed with the Advisor limitations in creating peer groups for index ETFs, including differences in underlying indexes and index-tracking methodologies that can result in greater management complexities across seemingly comparable ETFs and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Funds and other non-ETF clients that limited their comparability. In considering the unitary fee rates overall, the Board also considered the Advisor's statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor's description of its long-term commitment to each Fund. The Board considered performance information for each Fund. The Board noted the process it has established for monitoring each Fund's performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Funds. The Board determined that this process continues to be effective for reviewing each Fund's performance. The Board received and reviewed information for periods ended December 31, 2017 regarding the performance of each Fund's underlying index, the correlation between each Fund's performance and that of its underlying index, each Fund's tracking difference and each Fund's excess return as compared to its benchmark index. With respect to FTRI and FTAG, the Board noted that during 2015, shareholders of each Fund approved changes to each Fund's investment objective and, effective December 18, 2015, each Fund changed its name and ticker symbol, FTRI began tracking the Indxx Global Natural Resources Income Index and FTAG began tracking the Indxx Global Agricultural Index, and that the performance information included a blend of the old and new indexes. The Board considered the Advisor's representations regarding the impact of foreign security fair valuations and currency exchange rates on the correlation between FONE's, BICK's, FTRI's, FTAG's, CARZ's, FPXI's and CIBR's performance and that of each of their underlying indexes. Based on the information provided and its ongoing review of performance, the Board concluded that, after factoring in the impact of the fair valuations and currency exchange rates, each Fund was correlated to its underlying index and that the tracking difference for each Fund was within a reasonable range. In addition, the Board reviewed data prepared by MPI comparing each Fund's performance to that of its respective Peer Group and to that of one or more broad-based benchmark indexes, but given each Fund's objective of seeking investment results that correspond generally to the performance of its underlying index, the Board placed more emphasis on its review of correlation and tracking difference. On the basis of all the information provided on the unitary fee and performance of each Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for each Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to each Fund under the Agreements. The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Funds and noted the Advisor's statement that it believes its expenses will likely increase over the next twelve months as the Advisor continues to make investments in infrastructure and personnel. The Board noted that any reduction in fixed costs associated with the management of the Funds would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for the Funds. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to each Fund for the twelve months ended December 31, 2017 and the estimated profitability level for each Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor's profitability level for each Fund was not unreasonable. The Board considered that the Advisor had identified as a fall-out benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Funds, may have had no dealings with the Advisor or FTP, and noted that the Advisor does not utilize soft dollars in connection with its management of the Funds' portfolios. The Board concluded that the character and amount of potential fall-out benefits to the Advisor were not unreasonable. Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements continue to be fair and reasonable and that the continuation of the Agreements is in the best interests of each Fund. No single factor was determinative in the Board's analysis. Page 110 <PAGE> -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) REMUNERATION First Trust Advisors L.P. ("First Trust") is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain First Trust Exchange-Traded Fund II funds it manages (the "Funds") in certain member states in the European Economic Area in accordance with the cooperation arrangements in Article 42 of the Alternative Investment Fund Managers Directive (the "Directive"). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust's interpretation of currently available regulatory guidance on remuneration disclosures. During the year ended December 31, 2017, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Funds is $1,264,370. This figure is comprised of $50,882 paid (or to be paid) in fixed compensation and $1,213,488 paid (or to be paid) in variable compensation. There were a total of 14 beneficiaries of the remuneration described above. Those amounts include $885,211 paid (or to be paid) to senior management of First Trust Advisors L.P. and $379,159 paid (or to be paid) to other employees whose professional activities have a material impact on the risk profiles of First Trust Advisors L.P. or the Funds (collectively, "Code Staff"). Code Staff included in the aggregated figures disclosed above are rewarded in line with First Trust's remuneration policy (the "Remuneration Policy") which is determined and implemented by First Trust's senior management. The Remuneration Policy reflects First Trust's ethos of good governance and encapsulates the following principal objectives: i. to provide a clear link between remuneration and performance of First Trust and to avoid rewarding for failure; ii. to promote sound and effective risk management consistent with the risk profiles of the Funds managed by First Trust; and iii. to remunerate staff in line with the business strategy, objectives, values and interests of First Trust and the Funds managed by First Trust in a manner that avoids conflicts of interest. First Trust assesses various risk factors which it is exposed to when considering and implementing remuneration for Code Staff and considers whether any potential award to such person(s) would give rise to a conflict of interest. First Trust does not reward failure, or consider the taking of risk or failure to take risk in its remuneration of Code Staff. First Trust assesses performance for the purposes of determining payments in respect of performance-related remuneration of Code Staff by reference to a broad range of measures including (i) individual performance (using financial and non-financial criteria), and (ii) the overall performance of First Trust. Remuneration is not based upon the performance of the Funds. The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking. No individual is involved in setting his or her own remuneration. Page 111 <PAGE> -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) The following tables identify the Trustees and Officers of the Trust. Unless otherwise indicated, the address of all persons is 120 E. Liberty Drive, Suite 400, Wheaton, IL 60187. The Trust's statement of additional information includes additional information about the Trustees and is available, without charge, upon request, by calling (800) 988-5891. <TABLE> <CAPTION> NUMBER OF OTHER PORTFOLIOS IN TRUSTEESHIPS OR TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE NAME, YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Richard E. Erickson, Trustee o Indefinite Term Physician; Officer, Wheaton Orthopedics; 157 None (1951) Limited Partner, Gundersen Real Estate o Since Inception Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007 to November 2015) Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 157 Director of ADM (1957) (Futures Commission Merchant) Investor Services, o Since Inception Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 157 Director of Trust (1956) Management Consulting) Company of o Since Inception Illinois Niel B. Nielson, Trustee o Indefinite Term Senior Advisor (August 2018 to Present), 157 Director of (1954) Managing Director and Chief Operating Covenant o Since Inception Officer (January 2015 to August 2018), Pelita Transport Inc. Harapan Educational Foundation (Educational (May 2003 to Product and Services); President and Chief May 2014) Executive Officer (June 2012 to September 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services) ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 157 None Chairman of the Board Advisors L.P. and First Trust (1955) o Since Inception Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) </TABLE> ----------------------------- (1) Mr. Bowen is deemed an "interested person" of the Trust due to his position as Chief Executive Officer of First Trust Advisors L.P., investment advisor of the Trust. Page 112 <PAGE> -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) <TABLE> <CAPTION> POSITION AND TERM OF OFFICE NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS(2) ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> James M. Dykas President and Chief Executive o Indefinite Term Managing Director and Chief Financial Officer (1966) Officer (January 2016 to Present), Controller (January 2011 o Since January 2016 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice (1972) Officer and Chief President (April 2012 to July 2016), First Trust Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P. W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and (1960) Legal Officer First Trust Portfolios L.P.; Secretary and General o Since Inception Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and (1970) First Trust Portfolios L.P. o Since Inception Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. (1966) and Assistant Secretary and First Trust Portfolios L.P. o Since Inception Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. (1966) and First Trust Portfolios L.P. o Since Inception Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. (1970) and First Trust Portfolios L.P. o Since Inception </TABLE> ----------------------------- (2) The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 113 <PAGE> -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND II SEPTEMBER 30, 2018 (UNAUDITED) PRIVACY POLICY First Trust values our relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information. SOURCES OF INFORMATION We collect nonpublic personal information about you from the following sources: o Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms; o Information about your transactions with us, our affiliates or others; o Information we receive from your inquiries by mail, e-mail or telephone; and o Information we collect on our website through the use of "cookies". For example, we may identify the pages on our website that your browser requests or visits. INFORMATION COLLECTED The type of data we collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history, investment objectives, marital status, family relationships and other personal information. DISCLOSURE OF INFORMATION We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses may also include the disclosure of such information to unaffiliated companies for the following reasons: o In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives, proxy services, solicitors and printers. o We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud). In addition, in order to alert you to our other financial products and services, we may share your personal information within First Trust. USE OF WEBSITE ANALYTICS We currently use third party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust's website and marketing our products and services to you. These tools employ cookies, which are small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number of hits, pages visited, videos and PDFs viewed and the length of user sessions in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information, which is generally limited to technical and web navigation information such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust's website better and more useful to our users. The information collected does not include any personal identifiable information such as your name, address, phone number or email address unless you provide that information through the website for us to contact you in order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google Analytics and AddThis. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, First Trust restricts access to your nonpublic personal information to those First Trust employees who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information. POLICY UPDATES AND INQUIRIES As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors). May 2017 Page 114 <PAGE> This page intentionally left blank. <PAGE> This page intentionally left blank. <PAGE> FIRST TRUST First Trust Exchange-Traded Fund II INVESTMENT ADVISOR First Trust Advisors L.P. 120 East Liberty Drive, Suite 400 Wheaton, IL 60187 ADMINISTRATOR, CUSTODIAN, FUND ACCOUNTANT & TRANSFER AGENT The Bank of New York Mellon 240 Greenwich Street New York, NY 10286 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 111 S. Wacker Drive Chicago, IL 60606 LEGAL COUNSEL Chapman and Cutler LLP 111 W. Monroe Street Chicago, IL 60603 <PAGE> [BLANK BACK COVER] <PAGE>
For the Year Ended
October 31, 2018
1 | |
2 | |
4 | |
6 | |
7 | |
9 | |
10 | |
11 | |
12 | |
13 | |
19 | |
20 | |
25 | |
27 |
Performance | |||
Average Annual Total Returns | Cumulative Total Returns | ||
1 Year Ended 10/31/18 | Inception (11/11/15) to 10/31/18 | Inception (11/11/15) to 10/31/18 | |
Fund Performance | |||
NAV | 0.77% | 2.63% | 8.01% |
Market Price | 1.96% | 2.86% | 8.74% |
Index Performance | |||
FTSE EPRA/NAREIT Developed Index | 1.23% | 5.21% | 16.28% |
Sub-Industry Classification | % of Total Investments |
Office REITs | 25.0% |
Retail REITs | 22.7 |
Industrial REITs | 12.9 |
Residential REITs | 11.4 |
Diversified REITs | 9.0 |
Real Estate Operating Companies | 8.9 |
Diversified Real Estate Activities | 6.2 |
IT Consulting & Other Services | 2.4 |
Hotel & Resort REITs | 1.5 |
Total | 100.0% |
Top Ten Holdings | % of Total Investments |
AvalonBay Communities, Inc. | 7.9% |
Prologis, Inc. | 6.3 |
Simon Property Group, Inc. | 5.6 |
Federal Realty Investment Trust | 4.1 |
Inmobiliaria Colonial Socimi S.A. | 4.0 |
Rexford Industrial Realty, Inc. | 3.8 |
Equity Residential | 3.6 |
Fabege AB | 3.3 |
Boston Properties, Inc. | 3.2 |
Nippon Building Fund, Inc. | 3.0 |
Total | 44.8% |
Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
Number of Days Bid/Ask Midpoint At/Above NAV | ||||
For the Period | 0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% |
11/12/15 – 10/31/16 | 106 | 5 | 0 | 0 |
11/1/16 – 10/31/17 | 32 | 10 | 0 | 0 |
11/1/17 – 10/31/18 | 35 | 27 | 24 | 36 |
Number of Days Bid/Ask Midpoint Below NAV | ||||
For the Period | 0.00%–0.49% | 0.50%–0.99% | 1.00%–1.99% | >=2.00% |
11/12/15 – 10/31/16 | 123 | 8 | 2 | 0 |
11/1/16 – 10/31/17 | 68 | 103 | 31 | 7 |
11/1/17 – 10/31/18 | 39 | 50 | 33 | 8 |
Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | Annualized Expense Ratio Based on the Six-Month Period | Expenses Paid During the Six-Month Period (a) | |
First Trust Heitman Global Prime Real Estate ETF (PRME) | ||||
Actual | $1,000.00 | $983.10 | 0.95% | $4.75 |
Hypothetical (5% return before expenses) | $1,000.00 | $1,020.42 | 0.95% | $4.84 |
(a) | Expenses are equal to the annualized expense ratios as indicated in the table multiplied by the average account value over the period (May 1, 2018 through October 31, 2018), multiplied by 184/365 (to reflect the six-month period). |
Shares | Description | Value | ||
REAL ESTATE INVESTMENT TRUSTS (a) – 82.3% | ||||
Australia – 7.0% | ||||
3,905 | Dexus | $28,206 | ||
4,584 | Goodman Group | 33,695 | ||
12,391 | Scentre Group | 34,923 | ||
20,126 | Vicinity Centres | 37,769 | ||
134,593 | ||||
France – 2.9% | ||||
379 | Gecina S.A. | 55,677 | ||
Hong Kong – 2.1% | ||||
58,849 | Champion REIT | 39,623 | ||
Japan – 5.9% | ||||
9 | Activia Properties, Inc. | 37,329 | ||
3 | Kenedix Office Investment Corp. | 18,585 | ||
10 | Nippon Building Fund, Inc. | 57,163 | ||
113,077 | ||||
Multinational – 2.2% | ||||
230 | Unibail-Rodamco-Westfield | 41,755 | ||
Singapore – 2.1% | ||||
16,000 | CapitaLand Commercial Trust | 19,983 | ||
21,900 | Mapletree Logistics Trust | 19,131 | ||
39,114 | ||||
Spain – 4.0% | ||||
7,581 | Inmobiliaria Colonial Socimi S.A. | 76,206 | ||
United Kingdom – 5.3% | ||||
5,293 | British Land (The) Co., PLC | 40,052 | ||
880 | Derwent London PLC | 32,946 | ||
2,443 | Shaftesbury PLC | 28,010 | ||
101,008 | ||||
United States – 50.8% | ||||
1,058 | Acadia Realty Trust | 29,455 | ||
436 | Alexandria Real Estate Equities, Inc. | 53,292 | ||
856 | AvalonBay Communities, Inc. | 150,125 | ||
511 | Boston Properties, Inc. | 61,708 | ||
1,860 | Brookfield Property REIT, Inc. | 35,879 | ||
967 | Chesapeake Lodging Trust | 28,420 | ||
2,302 | Empire State Realty Trust, Inc., Class A | 36,510 | ||
1,046 | Equity Residential | 67,948 | ||
630 | Federal Realty Investment Trust | 78,152 | ||
1,817 | Hudson Pacific Properties, Inc. | 55,055 | ||
758 | Kilroy Realty Corp. | 52,211 | ||
1,855 | Prologis, Inc. | 119,592 | ||
2,315 | Rexford Industrial Realty, Inc. | 73,316 | ||
582 | Simon Property Group, Inc. | 106,809 |
Shares | Description | Value | ||
United States (Continued) | ||||
830 | Washington Real Estate Investment Trust | $23,132 | ||
971,604 | ||||
Total Real Estate Investment Trusts | 1,572,657 | |||
(Cost $1,629,837) | ||||
COMMON STOCKS (a) – 17.5% | ||||
Canada – 2.8% | ||||
3,617 | First Capital Realty, Inc. | 53,962 | ||
Cayman Islands – 2.7% | ||||
8,320 | Wharf Real Estate Investment Co., Ltd. | 51,510 | ||
Hong Kong – 2.1% | ||||
3,012 | Sun Hung Kai Properties Ltd. | 39,138 | ||
Japan – 4.2% | ||||
1,384 | Mitsubishi Estate Co., Ltd. | 22,146 | ||
987 | Mitsui Fudosan Co., Ltd. | 22,253 | ||
1,031 | Sumitomo Realty & Development Co., Ltd. | 35,480 | ||
79,879 | ||||
Netherlands – 2.4% | ||||
791 | InterXion Holding NV (b) | 46,566 | ||
Sweden – 3.3% | ||||
4,992 | Fabege AB | 63,769 | ||
Total Common Stocks | 334,824 | |||
(Cost $353,120) | ||||
Total Investments – 99.8% | 1,907,481 | |||
(Cost $1,982,957) (c) | ||||
Net Other Assets and Liabilities – 0.2% | 4,032 | |||
Net Assets – 100.0% | $1,911,513 |
(a) | Portfolio securities are categorized based upon their country of incorporation. |
(b) | Non-income producing security. |
(c) | Aggregate cost for federal income tax purposes was $1,997,600. As of October 31, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $16,606 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $106,725. The net unrealized depreciation was $90,119. |
Total Value at 10/31/2018 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Real Estate Investment Trusts* | $ 1,572,657 | $ 1,572,657 | $ — | $ — |
Common Stocks* | 334,824 | 334,824 | — | — |
Total Investments | $ 1,907,481 | $ 1,907,481 | $— | $— |
* | See Portfolio of Investments for country breakout. |
Currency Exposure Diversification | % of Total Investments |
USD | 53.4% |
JPY | 10.1 |
EUR | 9.1 |
AUD | 7.1 |
HKD | 6.8 |
GBP | 5.3 |
SEK | 3.3 |
CAD | 2.8 |
SGD | 2.1 |
Total | 100.0% |
Currency Abbreviations | |
AUD | Australian Dollar |
CAD | Canadian Dollar |
EUR | Euro |
GBP | British Pound Sterling |
HKD | Hong Kong Dollar |
JPY | Japanese Yen |
SEK | Swedish Krona |
SGD | Singapore Dollar |
USD | United States Dollar |
ASSETS: | |
Investments, at value (Cost $1,982,957) | $ 1,907,481 |
Cash | 6,990 |
Foreign currency (Cost $84) | 83 |
Receivables: | |
Investment securities sold | 12,508 |
Dividends | 1,610 |
Dividend reclaims | 1,005 |
Total Assets | 1,929,677 |
LIABILITIES: | |
Payables: | |
Investment securities purchased | 16,612 |
Investment advisory fees | 1,552 |
Total Liabilities | 18,164 |
NET ASSETS | $1,911,513 |
NET ASSETS consist of: | |
Paid-in capital | $ 2,120,164 |
Par value | 1,000 |
Accumulated distributable earnings (loss) | (209,651) |
NET ASSETS | $1,911,513 |
NET ASSET VALUE, per share | $19.11 |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | 100,002 |
INVESTMENT INCOME: | ||
Dividends | $ 76,810 | |
Foreign withholding tax | (1,397) | |
Total investment income | 75,413 | |
EXPENSES: | ||
Investment advisory fees | 11,026 | |
Total expenses | 11,026 | |
NET INVESTMENT INCOME (LOSS) | 64,387 | |
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
Net realized gain (loss) on: | ||
Investments | (67,394) | |
In-kind redemptions | 45,497 | |
Foreign currency transactions | 24 | |
Net realized gain (loss) | (21,873) | |
Net change in unrealized appreciation (depreciation) on: | ||
Investments | (93,661) | |
Foreign currency translation | (67) | |
Net change in unrealized appreciation (depreciation) | (93,728) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | (115,601) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $(51,214) |
Year Ended 10/31/2018 | Year Ended 10/31/2017 | ||
OPERATIONS: | |||
Net investment income (loss) | $ 64,387 | $ 15,372 | |
Net realized gain (loss) | (21,873) | 27,390 | |
Net change in unrealized appreciation (depreciation) | (93,728) | 39,105 | |
Net increase (decrease) in net assets resulting from operations | (51,214) | 81,867 | |
DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
Investment operations | (73,927) | ||
Net investment income | (46,757) | ||
Total distributions to shareholders | (73,927) | (46,757) | |
SHAREHOLDER TRANSACTIONS: | |||
Proceeds from shares sold | 1,966,321 | 1,885,063 | |
Cost of shares redeemed | (938,142) | (1,895,367) | |
Net increase (decrease) in net assets resulting from shareholder transactions | 1,028,179 | (10,304) | |
Total increase (decrease) in net assets | 903,038 | 24,806 | |
NET ASSETS: | |||
Beginning of period | 1,008,475 | 983,669 | |
End of period | $1,911,513 | $1,008,475 | |
Accumulated net investment income (loss) at end of period | $7,526 | ||
CHANGES IN SHARES OUTSTANDING: | |||
Shares outstanding, beginning of period | 50,002 | 50,002 | |
Shares sold | 100,000 | 100,000 | |
Shares redeemed | (50,000) | (100,000) | |
Shares outstanding, end of period | 100,002 | 50,002 |
Year Ended October 31, | Period Ended 10/31/2016 (a) | ||||
2018 | 2017 | ||||
Net asset value, beginning of period | $ 20.17 | $ 19.67 | $ 20.16 | ||
Income from investment operations: | |||||
Net investment income (loss) | 1.08 | 0.31 | 0.40 | ||
Net realized and unrealized gain (loss) | (0.89) | 1.13 | (0.45) | ||
Total from investment operations | 0.19 | 1.44 | (0.05) | ||
Distributions paid to shareholders from: | |||||
Net investment income | (1.25) | (0.94) | (0.44) | ||
Net asset value, end of period | $19.11 | $20.17 | $19.67 | ||
Total return (b) | 0.77% | 7.48% | (0.28)% | ||
Ratios to average net assets/supplemental data: | |||||
Net assets, end of period (in 000’s) | $ 1,912 | $ 1,008 | $ 984 | ||
Ratio of total expenses to average net assets | 0.95% | 0.95% | 0.95% (c) | ||
Ratio of net investment income (loss) to average net assets | 5.55% | 1.51% | 2.10% (c) | ||
Portfolio turnover rate (d) | 85% | 104% | 78% |
(a) | Inception date is November 11, 2015, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
(b) | Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
(c) | Annualized. |
(d) | Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
1) | the type of security; |
2) | the size of the holding; |
3) | the initial cost of the security; |
4) | transactions in comparable securities; |
5) | price quotes from dealers and/or third-party pricing services; |
6) | relationships among various securities; |
7) | information obtained by contacting the issuer, analysts, or the appropriate stock exchange; |
8) | an analysis of the issuer’s financial statements; and |
9) | the existence of merger proposals or tender offers that might affect the value of the security. |
1) | the value of similar foreign securities traded on other foreign markets; |
2) | ADR trading of similar securities; |
3) | closed-end fund trading of similar securities; |
4) | foreign currency exchange activity; |
5) | the trading prices of financial products that are tied to baskets of foreign securities; |
6) | factors relating to the event that precipitated the pricing problem; |
7) | whether the event is likely to recur; and |
8) | whether the effects of the event are isolated or whether they affect entire markets, countries or regions. |
• | Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
• | Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following: |
o | Quoted prices for similar investments in active markets. |
o | Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. |
o | Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). |
o | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
• | Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment. |
Distributions paid from: | 2018 | 2017 |
Ordinary income | $73,927 | $46,757 |
Capital gains | — | — |
Return of capital | — | — |
Undistributed ordinary income | $10,432 |
Accumulated capital and other losses | (129,936) |
Net unrealized appreciation (depreciation) | (90,147) |
Accumulated Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Paid-in Capital | ||
$8,487 | $(46,707) | $38,220 |
Dividends Received Deduction | Qualified Dividend Income | |
0.00% | 12.30% |
Name, Year of Birth and Position with the Trust | Term of Office and Year First Elected or Appointed | Principal Occupations During Past 5 Years | Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During Past 5 Years |
INDEPENDENT TRUSTEES | ||||
Richard E. Erickson, Trustee (1951) | • Indefinite Term • Since Inception | Physician; Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007 to November 2015) | 159 | None |
Thomas R. Kadlec, Trustee (1957) | • Indefinite Term • Since Inception | President, ADM Investor Services, Inc. (Futures Commission Merchant) | 159 | Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association |
Robert F. Keith, Trustee (1956) | • Indefinite Term • Since Inception | President, Hibs Enterprises (Financial and Management Consulting) | 159 | Director of Trust Company of Illinois |
Niel B. Nielson, Trustee (1954) | • Indefinite Term • Since Inception | Senior Advisor (August 2018 to Present), Managing Director and Chief Operating Officer (January 2015 to August 2018), Pelita Harapan Educational Foundation (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services) | 159 | Director of Covenant Transport, Inc. (May 2003 to May 2014) |
INTERESTED TRUSTEE | ||||
James A. Bowen(1), Trustee and Chairman of the Board (1955) | • Indefinite Term • Since Inception | Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) | 159 | None |
(1) | Mr. Bowen is deemed an “interested person” of the Trust due to his position as CEO of First Trust Advisors L.P., investment advisor of the Trust. |
Name and Year of Birth | Position and Offices with Trust | Term of Office and Length of Service | Principal Occupations During Past 5 Years |
OFFICERS(2) | |||
James M. Dykas (1966) | President and Chief Executive Officer | • Indefinite Term • Since January 2016 | Managing Director and Chief Financial Officer (January 2016 to Present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
Donald P. Swade (1972) | Treasurer, Chief Financial Officer and Chief Accounting Officer | • Indefinite Term • Since January 2016 | Senior Vice President (July 2016 to Present), Vice President (April 2012 to July 2016), First Trust Advisors L.P. and First Trust Portfolios L.P. |
W. Scott Jardine (1960) | Secretary and Chief Legal Officer | • Indefinite Term • Since Inception | General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC |
Daniel J. Lindquist (1970) | Vice President | • Indefinite Term • Since Inception | Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Kristi A. Maher (1966) | Chief Compliance Officer and Assistant Secretary | • Indefinite Term • Since Inception | Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Roger F. Testin (1966) | Vice President | • Indefinite Term • Since Inception | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Stan Ueland (1970) | Vice President | • Indefinite Term • Since Inception | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P |
(2) | The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. |
• | Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms; |
• | Information about your transactions with us, our affiliates or others; |
• | Information we receive from your inquiries by mail, e-mail or telephone; and |
• | Information we collect on our website through the use of “cookies”. For example, we may identify the pages on our website that your browser requests or visits. |
• | In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives, proxy services, solicitors and printers. |
• | We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud). |
FUND ACCOUNTANT &
TRANSFER AGENT
PUBLIC ACCOUNTING FIRM
PART C: OTHER INFORMATION
ITEM 15: INDEMNIFICATION
Section 9.5 of the Registrant’s Declaration of Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 9.5, every person who is, or has been, a Trustee, officer, or employee of the Trust, including persons who serve at the request of the Trust as directors, trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor or otherwise (hereinafter referred to as a “Covered Person”), shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him or in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been such a Trustee, director, officer, employee or agent and against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person to the extent such indemnification is prohibited by applicable federal law.
The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be such a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a person.
Subject to applicable federal law, expenses of preparation and presentation of a defense to any claim, action, suit or proceeding subject to a claim for indemnification under this Section 9.5 shall be advanced by the Trust prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Section 9.5.
To the extent that any determination is required to be made as to whether a Covered Person engaged in conduct for which indemnification is not provided as described herein, or as to whether there is reason to believe that a Covered Person ultimately will be found entitled to indemnification, the Person or Persons making the determination shall afford the Covered Person a rebuttable presumption that the Covered Person has not engaged in such conduct and that there is reason to believe that the Covered Person ultimately will be found entitled to indemnification.
As used in this Section 9.5, the words “claim,” “action,” “suit” or “proceeding” shall apply to all claims, demands, actions, suits, investigations, regulatory inquiries, proceedings or any other occurrence of a similar nature, whether actual or threatened and whether civil, criminal, administrative or other, including appeals, and the words “liability” and “expenses” shall include without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.
ITEM 16: EXHIBITS
The following exhibits are filed herewith as part of this Registration Statement or incorporated herein by reference.
(1) | (a) Declaration of Trust of the Registrant. (1) |
(b) Amended and Restated Establishment and Designation of Series. (5)
(2) | By-Laws of the Registrant. (1) |
(3) | Not applicable. |
(4) | Form of Agreement and Plan of Reorganization (included in the Proxy Statement/Prospectus as Exhibit A thereto). (8) |
(5) | Not applicable. |
(6) | (a) Investment Management Agreement between Registrant and First Trust Advisors L.P., dated December 6, 2010, relating to First Trust STOXX®European Select Dividend Index Fund, First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund, First Trust Dow Jones Global Select Dividend Index Fund, First Trust Global Wind Energy ETF, First Trust Global Engineering and Construction ETF and First Trust NASDAQ®Clean Edge® Smart Grid Infrastructure Index Fund. (3) |
(b) Amended Schedule A of the Investment Management Agreement between Registrant and First Trust Advisors L.P., dated January 20, 2011, relating to First Trust STOXX® European Select Dividend Index Fund, First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund, First Trust Dow Jones Global Select Dividend Index Fund, First Trust Global Wind Energy ETF, First Trust Global Engineering and Construction ETF and First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund. (4)
(c) Expense Reimbursement, Fee Waiver and Recovery Agreement, relating to First Trust STOXX® European Select Dividend Index Fund, First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund, First Trust Dow Jones Global Select Dividend Index Fund, First Trust Global Wind Energy ETF, First Trust Global Engineering and Construction ETF and First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund. (3)
(d) Letter Agreement regarding the Expense Reimbursement, Fee Waiver Recovery Agreement. (7)
(7) | (a) Distribution Agreement. (3) |
(b) Amended Exhibit A of the Distribution Agreement. (6)
(8) | Not applicable. |
(9) | (a) Custody Agreement between the Registrant and The Bank of New York. (2) |
(b) Amended Schedule II of the Custody Agreement. (6)
(10) | (a) 12b-1 Service Plan. (2) |
(b) Exhibit A to 12b-1 Service Plan. (6)
(c) 12b-1 Plan Extension Letter Agreement. (7)
(11) | Opinion and Consent of Morgan, Lewis & Bockius LLP dated May 8, 2019. (8) |
(12) | Opinion and Consent of Chapman and Cutler LLP dated May 8, 2019. (8) |
(13) | Not applicable. |
(14) | (a) Consent of Independent Registered Public Accounting Firm for First Trust Heitman Global Prime Real Estate ETF. (8) |
(b) Consent of Independent Registered Public Accounting Firm for First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund. (8)
(15) | Not applicable. |
(16) | Powers of Attorney for Messrs. Bowen, Erickson, Kadlec, Keith and Nielson authorizing James A. Bowen, W. Scott Jardine, James M. Dykas, Kristi A. Maher and Eric F. Fess to execute the Registration Statement. (8) |
(17) | Form of Proxy Card for First Trust Heitman Global Prime Real Estate ETF (included in the Proxy Statement/Prospectus). * |
_______________
* To be filed by amendment.
(1) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-143964) filed on June 21, 2007. |
(2) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-143964) filed on August 30, 2007. |
(3) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-143964) filed on January 28, 2011. |
(4) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-143964) filed on January 27, 2012. |
(5) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-143964) filed on August 17, 2018. |
(6) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-143964) filed on October 31, 2018. |
(7) | Incorporated by reference to the Registrant’s Registration Statement on Form N-1A (File No. 333-143964) filed on January 28, 2019. |
(8) | Filed herewith. |
ITEM 17: UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, in the City of Wheaton and State of Illinois, on the 8th day of May, 2019.
First Trust Exchange-Traded Fund II
By: /s/ James M. Dykas
James M. Dykas, President and Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated:
Signature | Date | ||
/s/ James M. Dykas | President and Chief Executive | ||
James M. Dykas | Officer | May 8, 2019 | |
/s/ Donald P. Swade | Treasurer, Chief Financial | ||
Donald P. Swade | Officer and Chief Accounting Officer | May 8, 2019 | |
) | |||
James A. Bowen* | Trustee ) | ||
) | |||
) | |||
Richard E. Erickson* | Trustee ) | ||
) | |||
) | By: | /s/ W. Scott Jardine | |
Thomas R. Kadlec* | Trustee ) | W. Scott Jardine | |
) | Attorney-In-Fact | ||
) | May 8, 2019 | ||
Robert F. Keith* | Trustee ) | ||
) | |||
) | |||
Niel B. Nielson* | Trustee ) | ||
) |
* | Original powers of attorney authorizing James A. Bowen, W. Scott Jardine, James M. Dykas, Kristi A. Maher and Eric F. Fess to execute Registrant’s Registration Statement, and Amendments thereto, for each of the trustees of the Registrant on whose behalf this Registration Statement is filed, are filed herewith. |
EXHIBIT INDEX
(11) | Opinion and Consent of Morgan, Lewis & Bockius LLP dated May 8, 2019. |
(12) | Opinion and Consent of Chapman and Cutler LLP dated May 8, 2019. |
(14) | (a) Consent of Independent Registered Public Accounting Firm for First Trust Heitman Global Prime Real Estate ETF. |
(b) Consent of Independent Registered Public Accounting Firm for First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund.
(16) | Powers of Attorney for Messrs. Bowen, Erickson, Kadlec, Keith and Nielson authorizing James A. Bowen, W. Scott Jardine, James M. Dykas, Kristi A. Maher and Eric F. Fess to execute the Registration Statement. |